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Implementing the best steady state with savings in unbacked risky assets

Author

Listed:
  • Julio Dávila

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain = Catholic University of Louvain, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

This paper shows, in an overlapping generations economy à la Diamond (1965), that when savings in an unbacked asset (e.g. at money) bear some risk of becoming suddenly worthless, the market does not implement the best steady state attainable with that asset. Nonetheless, in the absence of an absolutely riskless at money and excluding resorting to redistributive scal policies that would allow to attain the rst-best steady state, this best monetary steady state can be implemented as a competitive equilibrium with the adequate policy of taxes on returns to capital, subsidies to returns to monetary savings, and lump-sum transfers. The policy is, at the steady state, balanced every period and non-redistributive.

Suggested Citation

  • Julio Dávila, 2013. "Implementing the best steady state with savings in unbacked risky assets," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00667423, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00667423
    DOI: 10.1017/S1365100511000666
    as

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