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On Existence and Bubbles of Ramsey Equilibrium with Borrowing Constraints

  • Robert Becker

    ()

    (Department of Economics, Indiana University - Indiana University)

  • Stefano Bosi

    ()

    (EPEE - Centre d'Etudes des Politiques Economiques - Université d'Evry-Val d'Essonne)

  • Cuong Le Van

    ()

    (Ipag Business School - Ipag Business School, VCREME - VanXuan Center of Research in Economics, Management and Environment - VanXuan Center of Research in Economics, Management and Environment, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

  • Thomas Seegmuller

    ()

    (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))

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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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00793530.

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Date of creation: Nov 2013
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Handle: RePEc:hal:cesptp:halshs-00793530
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