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On Existence and Bubbles of Ramsey Equilibrium with Borrowing Constraints

Listed author(s):
  • 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.)

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.

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File URL: http://www.amse-aixmarseille.fr/sites/default/files/_dt/2012/wp_2012_-_nr_31_0.pdf
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Paper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1231.

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Length: 44 pages
Date of creation: 11 Nov 2012
Date of revision: 11 Nov 2012
Handle: RePEc:aim:wpaimx:1231
Contact details of provider: Web page: http://www.amse-aixmarseille.fr/en

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