This thesis contains two parts. In the first part (Chapter 1 and 2), I study the existence of rational bubbles and the impact of these bubbles on the real economy in various infinite-horizon models. In the second part, I revisit the long-run relationship between money and growth, by modelling the liquidity channel at the firm level. Chapter 1 explores the existence of rational bubbles in the pricing of an asset that pays no dividend. I find that when the "spirit of capitalism" is introduced into a growth model, rational bubbles do exist provided that the marginal benefit from holding wealth is nontrivial relative to the marginal utility of consumption as time goes to infinity. I use phase diagrams to discuss the property of the bubbly equilibrium and I use two examples to desc...[ Read more ]

This thesis contains two parts. In the first part (Chapter 1 and 2), I study the existence of rational bubbles and the impact of these bubbles on the real economy in various infinite-horizon models. In the second part, I revisit the long-run relationship between money and growth, by modelling the liquidity channel at the firm level. Chapter 1 explores the existence of rational bubbles in the pricing of an asset that pays no dividend. I find that when the "spirit of capitalism" is introduced into a growth model, rational bubbles do exist provided that the marginal benefit from holding wealth is nontrivial relative to the marginal utility of consumption as time goes to infinity. I use phase diagrams to discuss the property of the bubbly equilibrium and I use two examples to describe the bubbly equilibrium trajectory explicitly and more intuitively. Moreover, I show that a stochastic bubble, which bursts with an exogenous probability, could exist. This phenomenon could provide a simple theoretical foundation to explore economic implications of the collapse of bubbles. Chapter 2 extends the discussion in the previous chapter when the asset in question pays positive dividends. I show that rational bubbles still exist in a growing economy. The existence of bubbles depends on the relative magnitudes of risk aversion parameters in consumption and in wealth. Furthermore, I examine how exogenous shocks to technology affect the birth of bubbles. Chapter 3 revisits the relationship between money and long-run growth when liquidity demand at the firm level is explicitly modelled. Through a set of sensitivity analyses, I find that this relationship could be positive, negative, or display a hump shape depending on the size of average liquidity demand and the level of financial development. These results explain why existing empirical studies report mixed findings on the relationship.