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On Existence and Bubbles of Ramsey Equilibrium with Borrowing Constraints

Author

Listed:
  • Robert Becker

    () (Indiana University.)

  • Stefano Bosi

    () (EPEE, University of Evry.)

  • Cuong Le Van

    () (CES, CNRS, VCREME and Hanoi WRU.)

  • Thomas Seegmuller

    () (Aix-Marseille University (Aix-Marseille School of Economics), CNRS and EHESS.)

Abstract

We study the existence of equilibrium and rational bubbles in a Ramsey model with heterogeneous agents, borrowing constraints and endogenous labor. Applying a nonstandard fixed-point theorem by Gale and Mas-Colell’s (1975), we prove the existence of equilibrium in a time-truncated bounded economy. A common argument shows this solution to be an equilibrium for any unbounded economy with the same fundamentals. Taking the limit of a sequence of truncated economies, we eventually obtain the existence of equilibrium in the Ramsey model. In the second part of the paper, we address the issue of rational bubbles and we prove that they never occur in a productive economy à la Ramsey.

Suggested Citation

  • Robert Becker & Stefano Bosi & Cuong Le Van & Thomas Seegmuller, 2012. "On Existence and Bubbles of Ramsey Equilibrium with Borrowing Constraints," AMSE Working Papers 1231, Aix-Marseille School of Economics, Marseille, France, revised 11 Nov 2012.
  • Handle: RePEc:aim:wpaimx:1231
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Ramsey equilibrium; existence; efficiency; bubbles; heterogeneous; agents; endogenous labor supply; borrowing constraint.;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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