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Long-lived collateralized assets and bubbles

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  • Aloisio Araujo
  • Mario Rui Pascoa
  • Juan Pablo Torres-Martinez

    ()
    (Department of Economics, PUC-Rio)

Abstract

When infinite lived agents trade long-lived assets secured by durable goods, equilibrium exists without any uniform impatience requirements or additional debt constraints. Asset pricing bubbles are absent when the new endowments of durable goods are uniformly bounded away from zero. Otherwise, bubbles may occur, even for assets in persistently positive net supply and for deflators that yield finite present values of aggregate wealth.

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Bibliographic Info

Paper provided by Department of Economics PUC-Rio (Brazil) in its series Textos para discussão with number 542.

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Length: 30p
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:rio:texdis:542

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Keywords: Existence of equilibrium; Asset pricing bubbles; Collateralized assets.;

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References

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  1. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, Elsevier, vol. 6(1), pages 12-36, February.
  2. Magill, M. & Quinzii, M., 1993. "Icomplete Markets Over an Infinite Horizon: Long-Lived Securities and Speculative Bubbles," Papers, Southern California - Department of Economics 9321, Southern California - Department of Economics.
  3. Felix Kubler & Karl Schmedders, 2001. "Stationary Equilibria in Asset-Pricing Models with Incomplete Markets and Collateral," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1319, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Mário Páscoa & Myrian Petrassi & Juan Pablo Torres-Martínez, 2008. "Fiat money and the value of binding portfolio constraints," Working Papers, University of Chile, Department of Economics wp283, University of Chile, Department of Economics.
  5. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, Econometric Society, vol. 65(1), pages 19-58, January.
  6. Araujo, Aloisio. & Fajardo, J. & Páscoa. M. R., 2004. "Endogenous Collateral," Finance Lab Working Papers, Finance Lab, Insper Instituto de Ensino e Pesquisa flwp_68, Finance Lab, Insper Instituto de Ensino e Pesquisa.
  7. Eduardo L. Gim�nez, 2001. "Complete and Incomplete Markets with Short-Sale Constraints," Tinbergen Institute Discussion Papers 01-034/1, Tinbergen Institute.
  8. Hernandez D., Alejandro & Santos, Manuel S., 1996. "Competitive Equilibria for Infinite-Horizon Economies with Incomplete Markets," Journal of Economic Theory, Elsevier, Elsevier, vol. 71(1), pages 102-130, October.
  9. Grandmont, Jean-Michel & Younes, Yves, 1972. "On the Role of Money and the Existence of a Monetary Equilibrium," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 39(3), pages 355-72, July.
  10. Aloisio Araujo & M�rio Rui P�scoa & Juan Pablo Torres-Mart�nez, 2002. "Collateral Avoids Ponzi Schemes in Incomplete Markets," Econometrica, Econometric Society, Econometric Society, vol. 70(4), pages 1613-1638, July.
  11. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 66, pages 467.
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Cited by:
  1. Ferreira, Thiago Revil T. & Torres-Martínez, Juan Pablo, 2010. "The impossibility of effective enforcement mechanisms in collateralized credit markets," Journal of Mathematical Economics, Elsevier, vol. 46(3), pages 332-342, May.
  2. Miguel A. Iraola & Juan Pablo Torres-Martínez, 2012. "Liquidity Contractions and Prepayment Risk on Collateralized Asset Markets," Working Papers, University of Chile, Department of Economics wp364, University of Chile, Department of Economics.
  3. Miguel A. Iraola & Juan Pablo Torres-Martinez, 2013. "Liquidity Contractions, Incomplete Financial Participation and the Prevalence of Negative Equity Non-Recourse Loans," Working Papers, University of Miami, Department of Economics 2013-08, University of Miami, Department of Economics.

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