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Ramsey Equilibrium with Liberal Borrowing

Listed author(s):
  • Robert A. Becker
  • Kirill Borissov
  • Ram Sewak Dubey

This paper considers a multi-agent one-sector Ramsey equilibrium growth model with borrowing constraints. The extreme borrowing constraint used in the classical version of the model, surveyed in Becker (2006), and the limited form of borrowing constraint examined in Borissov and Dubey (2015) are relaxed to allow more liberal borrowing by the households. A perfect foresight equilibrium is shown to exist in this economy. Each equilibrium's aggregate capital stock sequence is eventually monotonic and is shown to converge to the unique stationary equilibrium capital stock and the impatient households are eventually in the maximum borrowing state and remain so for all subsequent periods, whereas the most patient household eventually owns the entire capital stock and the other households debts. This convergence result is unlike the possibility of non-convergent equilibrium capital stock sequences in the model with no borrowing and like the equilibrium outcomes in the model with limited borrowing. Here, the convergence theorem is independent of the production technology employed by the firms. As the borrowing regime is progressively liberalized, the Gini coefficient of steady state wealth distribution increases.

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Paper provided by European University at St. Petersburg, Department of Economics in its series EUSP Department of Economics Working Paper Series with number Ec-02/15.

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Length: 52 pages
Date of creation: 19 May 2015
Handle: RePEc:eus:wpaper:ec0215
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  1. Nishimura, Kazuo & Nourry, Carine & Seegmuller, Thomas & Venditti, Alain, 2016. "Public Spending As A Source Of Endogenous Business Cycles In A Ramsey Model With Many Agents," Macroeconomic Dynamics, Cambridge University Press, vol. 20(02), pages 504-524, March.
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  4. Kazuo Nishimura & Carine Nourry & Thomas Seegmuller & Alain Venditti, 2015. "On the (de)stabilizing effect of public debt in a Ramsey model with heterogeneous agents," International Journal of Economic Theory, The International Society for Economic Theory, vol. 11(1), pages 7-24, 03.
  5. Becker, Robert A. & Mitra, Tapan, 2012. "Efficient Ramsey Equilibria," Macroeconomic Dynamics, Cambridge University Press, vol. 16(S1), pages 18-32, April.
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  9. Bodenstein, Martin & Erceg, Christopher J. & Guerrieri, Luca, 2008. "Optimal monetary policy with distinct core and headline inflation rates," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages 18-33, October.
  10. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June.
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  19. Leduc, Sylvain & Sill, Keith, 2004. "A quantitative analysis of oil-price shocks, systematic monetary policy, and economic downturns," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 781-808, May.
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  23. Rajeev Dhawan & Karsten Jeske, 2007. "Taylor rules with headline inflation: a bad idea," FRB Atlanta Working Paper 2007-14, Federal Reserve Bank of Atlanta.
  24. Robert A. Becker, 1980. "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 375-382.
  25. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
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  27. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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