This paper explores the relation between the quality of financial
institution and asset bubbles. In this paper, we will show that bubbles
can improve the macro performance even if the quality of financial
institution is very poor and the financial market does not work well.
In this sense, the high quality of financial institution and bubbles are
substitutes. We will explore, however, that they are not perfect substitutes.
Bubbles may burst. If bubbles burst, the economic performance
must go down if the quality of financial institution is low. Hence, we
will show that not relaying on bubbles, but improving the quality of
financial institution is important for long run macro performance.
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