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Existence of solutions and asset pricing bubbles in general equilibrium models

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Author Info
Claudio Mattalia ()
Abstract

This paper analyses the problem represented by the presence of speculative bubbles on asset prices in general equilibrium models. The main results concerning the existence of solutions in intertemporal general equilibrium models are summarized, then the specific problem of asset pricing is discussed. In particular, the theoretical results concerning the existence of speculative bubbles on asset prices are presented, together with the results that can be obtained through a new approach, based on Euler equations. In the last part a series of examples in which speculative bubbles on asset prices do appear are illustrated, and the corresponding conditions that allow to exclude the presence of such bubbles are derived. Finally, some considerations are developed in order to match the predictions of the theory with the empirical observations concerning the behavior of asset prices.

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Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers - Applied Mathematics Series with number 02-2003.

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Length: 56 pages
Date of creation: Jan 2003
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Handle: RePEc:icr:wpmath:02-2003

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Related research
Keywords: General Equilibrium; Asset Pricing; Speculative Bubbles;

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Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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  3. Wilson, Charles, 1991. "Incomplete Markets," Working Papers 91-63, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  7. Duffie, Darrell & Shafer, Wayne, 1985. "Equilibrium in incomplete markets: I : A basic model of generic existence," Journal of Mathematical Economics, Elsevier, vol. 14(3), pages 285-300, June. [Downloadable!] (restricted)
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  14. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November. [Downloadable!] (restricted)
  15. Magill, Michael & Quinzii, Martine, 1996. "Incomplete markets over an infinite horizon: Long-lived securities and speculative bubbles," Journal of Mathematical Economics, Elsevier, vol. 26(1), pages 133-170. [Downloadable!] (restricted)
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  16. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier. [Downloadable!] (restricted)
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