Capital gains play an important, positive role in the inter-temporal allocation of resources, but they can also be a source of economic instability. We analyze a simple overlapping-generations economy with two capital goods and irreversible investment. For each vector of initial capital/labor ratios, there is one and only one trajectory on which expectations are realized at every date. If there is any deviation from this trajectory, then there is a bubble which must burst in finite time.
|Date of creation:||Jan 2006|
|Contact details of provider:|| Postal: 402 Uris Hall, Ithaca, NY 14853|
Phone: (607) 255-9901
Fax: (607) 255-2818
Web page: http://www.arts.cornell.edu/econ/CAE/workingpapers.html
More information through EDIRC
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.:
- K. Shell, 1968. "Applications of Pontryagin's Maximum Principle of Economics," Working papers 16, Massachusetts Institute of Technology (MIT), Department of Economics.
- Grandmont, Jean-Michel, 1977.
"Temporary General Equilibrium Theory,"
Econometric Society, vol. 45(3), pages 535-572, April.
- Grandmont, Jean-Michel & Hildenbrand, Werner, 1974.
"Stochastic processes of temporary equilibria,"
Journal of Mathematical Economics,
Elsevier, vol. 1(3), pages 247-277, December.
- Luís Aguiar-Conraria & Karl Shell, 2006.
International Journal of Economic Theory,
The International Society for Economic Theory, vol. 2(3-4), pages 331-349.
- Magill, Michael & Quinzii, Martine, 2003. "Nonshiftable capital, affine price expectations and convergence to the Golden Rule," Journal of Mathematical Economics, Elsevier, vol. 39(3-4), pages 239-272, June.
- K. Shell & M. Sidrauski & J. E. Stiglitz, 1967.
"Capital Gains, Income, and Saving,"
12, Massachusetts Institute of Technology (MIT), Department of Economics.
- C. Caton & K. Shell, 1971. "An Exercise in the Theory of Heterogeneous Capital Accumulation," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 13-22.
- Benhabib Jess & Rustichini Aldo, 1994. "Introduction to the Symposium on Growth, Fluctuations, and Sunspots: Confronting the Data," Journal of Economic Theory, Elsevier, vol. 63(1), pages 1-18, June.
- Grandmont, Jean-Michel, 1985.
"On Endogenous Competitive Business Cycles,"
Econometric Society, vol. 53(5), pages 995-1045, September.
- Edwin Burmeister & Daniel A. Graham, 1974. "Multi-sector Economic Models with Continuous Adaptive Expectations," Review of Economic Studies, Oxford University Press, vol. 41(3), pages 323-336.
- A. B. Atkinson, 1969. "The Timescale of Economic Models: How Long is the Long Run?," Review of Economic Studies, Oxford University Press, vol. 36(2), pages 137-152.
When requesting a correction, please mention this item's handle: RePEc:ecl:corcae:06-02. 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: ()
If references are entirely missing, you can add them using this form.