Advanced Search
MyIDEAS: Login

Asset Prices, Debt Constraints and Inefficiency

Contents:

Author Info

  • Gaetano Bloise

    (Department of Economics, University of Rome III)

  • Pietro Reichlin

    (Department of Economics, LUISS ‘Guido Carli’, CEPR and EIEF)

Abstract

In this paper, we consider economies with (possibly endogenous) solvency constraints under uncertainty. Constrained inefficiency corresponds to a feasible redistribution yielding a welfare improvement beginning from every contingency reached by the economy. A sort of Cass Criterion (Cass, 1972) completely characterizes constrained inefficiency. This criterion involves only observable prices and requires low interest rates in the long-run, exactly as in economies with overlapping generations. In addition, when quantitative limits to liabilities arise from participation constraints, a feasible welfare improvement, subject to participation, coincides with the introduced notion of constrained inefficiency.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.eief.it/files/2012/09/wp-03-asset-prices-debt-constraints-and-inefficiency.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 0803.

as in new window
Length: 26 pages
Date of creation: 2008
Date of revision: Mar 2008
Handle: RePEc:eie:wpaper:0803

Contact details of provider:
Postal: Via Sallustiana, 62 - 00187 Roma
Phone: +39 066790013
Fax: +39 0647924872
Email:
Web page: http://www.eief.it/repec
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jeremy Bulow & Kenneth Rogoff, 1998. "Sovereign Debt: Is to Forgive to Forget," Levine's Working Paper Archive 209, David K. Levine.
  2. David K. Levine & William R. Zame, 1993. "Debt Constraints and Equilibrium in Infinite Horizon Economies with Incomplete Markets," UCLA Economics Working Papers 703, UCLA Department of Economics.
  3. Bloise, Gaetano & Calciano, Filippo L., 2007. "A Characterization of Inefficiency in Stochastic Overlapping Generations Economies," MPRA Paper 8780, University Library of Munich, Germany.
  4. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
  5. Timothy J Kehoe & David K Levine, 1993. "Debt Constrained Asset Markets," Levine's Working Paper Archive 1276, David K. Levine.
  6. Cass, David, 1972. "On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization," Journal of Economic Theory, Elsevier, vol. 4(2), pages 200-223, April.
  7. Hanno Lustig, 2004. "The Market Price of Aggregate Risk and the Wealth Distribution," UCLA Economics Online Papers 299, UCLA Department of Economics.
  8. Barbie Martin & Hagedorn Marcus & Kaul Ashok, 2004. "Assessing Aggregate Tests of Efficiency for Dynamic Economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-17, December.
  9. Chattopadhyay, Subir & Gottardi, Piero, 1999. "Stochastic OLG Models, Market Structure, and Optimality," Journal of Economic Theory, Elsevier, vol. 89(1), pages 21-67, November.
  10. Rao Aiyagari, S. & Peled, Dan, 1991. "Dominant root characterization of Pareto optimality and the existence of optimal equilibria in stochastic overlapping generations models," Journal of Economic Theory, Elsevier, vol. 54(1), pages 69-83, June.
  11. Woodford, Michael, 1990. "Public Debt as Private Liquidity," American Economic Review, American Economic Association, vol. 80(2), pages 382-88, May.
  12. Scheinkman, Jose A & Weiss, Laurence, 1986. "Borrowing Constraints and Aggregate Economic Activity," Econometrica, Econometric Society, vol. 54(1), pages 23-45, January.
  13. Christian Hellwig & Guido Lorenzoni, 2006. "Bubbles and Self-enforcing Debt," Levine's Bibliography 321307000000000383, UCLA Department of Economics.
  14. Chris Shannon and William R. Zame., 1999. "Quadratic Concavity and Determinacy of Equilibrium," Economics Working Papers E99-271, University of California at Berkeley.
  15. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  16. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  17. Narayana Kocherlakota, 2010. "Implications of Efficient Risk Sharing Without Commitment," Levine's Working Paper Archive 2053, David K. Levine.
  18. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 659-84, August.
  19. Abel, Andrew B, et al, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 1-19, January.
  20. Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
  21. Chattopadhyay, Subir, 2008. "The Cass criterion, the net dividend criterion, and optimality," Journal of Economic Theory, Elsevier, vol. 139(1), pages 335-352, March.
  22. Demange, Gabrielle & Laroque, Guy, 2000. " Social Security, Optimality, and Equilibria in a Stochastic Overlapping Generations Economy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(1), pages 1-23.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Rheinberger, Klaus & Summer, Martin & Eichberger, Jürgen, 2011. "Credit Risk in General Equilibrium," Working Papers 172, Oesterreichische Nationalbank (Austrian Central Bank).
  2. Becker, Robert & Mitra, Tapan, 2011. "Efficient Ramsey Equilibria," Working Papers 11-02, Cornell University, Center for Analytic Economics.
  3. Bloise, Gaetano & Reichlin, Pietro & Tirelli, Mario, 2009. "Indeterminacy of Competitive Equilibrium with Risk of Default," CEPR Discussion Papers 7477, C.E.P.R. Discussion Papers.
  4. Bidian, Florin & Bejan, Camelia, 2011. "Martingale properties of self-enforcing debt," MPRA Paper 36609, University Library of Munich, Germany, revised 12 Feb 2012.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eie:wpaper:0803. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Facundo Piguillem).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.