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Capital Gains

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  • Aguiar-Conraria, Luis

    (NIPE, U of Minho)

  • Shell, Karl

    (Cornell U)

Abstract

Capital gains play an important, positive role in the inter-temporal allocation of resources, but they can also be a source of economic instability. We analyze a simple overlapping-generations economy with two capital goods and irreversible investment. For each vector of initial capital/labor ratios, there is one and only one trajectory on which expectations are realized at every date. If there is any deviation from this trajectory, then there is a bubble which must burst in finite time.

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Bibliographic Info

Paper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 06-02.

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Date of creation: Jan 2006
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Handle: RePEc:ecl:corcae:06-02

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References

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  1. K. Shell & M. Sidrauski & J. E. Stiglitz, 1967. "Capital Gains, Income, and Saving," Working papers 12, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Atkinson, Anthony B, 1969. "The Timescale of Economic Models: How Long Is the Long Run?," Review of Economic Studies, Wiley Blackwell, vol. 36(106), pages 137-52, April.
  3. Aguiar-Conraria, Luis & Shell, Karl, 2006. "Capital Gains," Working Papers 06-02, Cornell University, Center for Analytic Economics.
  4. Grandmont, Jean-Michel, 1993. "Temporary general equilibrium theory," Handbook of Mathematical Economics, in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 19, pages 879-922 Elsevier.
  5. Caton, C & Shell, Karl, 1971. "An Exercise in the Theory of Heterogeneous Capital Accumulation," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 13-22, January.
  6. K. Shell, 1968. "Applications of Pontryagin's Maximum Principle of Economics," Working papers 16, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Burmeister, Edwin & Graham, Daniel A, 1974. "Multi-sector Economic Models with Continuous Adaptive Expectations," Review of Economic Studies, Wiley Blackwell, vol. 41(3), pages 323-36, July.
  8. Magill, Michael & Quinzii, Martine, 2003. "Nonshiftable capital, affine price expectations and convergence to the Golden Rule," Journal of Mathematical Economics, Elsevier, vol. 39(3-4), pages 239-272, June.
  9. GRANDMONT, Jean-Michel & HILDENBRAND, Werner, . "Stochastic processes of temporary equilibria," CORE Discussion Papers RP -206, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  11. Benhabib Jess & Rustichini Aldo, 1994. "Introduction to the Symposium on Growth, Fluctuations, and Sunspots: Confronting the Data," Journal of Economic Theory, Elsevier, vol. 63(1), pages 1-18, June.
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Cited by:
  1. Kaushik Basu, 2009. "A Marketing Scheme for Making Money off Innocent People: A User’s Manual," Working Papers id:2341, eSocialSciences.
  2. Luís Aguiar-Conraria & Karl Shell, 2006. "Capital gains," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(3-4), pages 331-349.
  3. Barnett, Richard C. & Bhattacharya, Joydeep & Bunzel, Helle, 2007. "Minimum Consumption Requirements and Cycles in an Overlapping Generations Model of Money," Staff General Research Papers 12834, Iowa State University, Department of Economics.
  4. Richard C. Barnett & Joydeep Bhattacharya & Helle Bunzel, 2007. "Resurrecting Equilibria Through Cycles," Economics Working Papers 2007-12, School of Economics and Management, University of Aarhus.
  5. Roger Haefen, 2008. "Latent Consideration Sets and Continuous Demand Systems," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 41(3), pages 363-379, November.
  6. Barnett, Richard C. & Bhattacharya, Joydeep & Bunzel, Helle, 2010. "Resurrecting equilibria through cycles in an overlapping generations model of money," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 515-526, June.

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