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Intertemporal equilibrium with production: bubbles and efficiency

  • Stefano Bosi

    ()

    (EPEE - Université d'Evry-Val d'Essonne)

  • Cuong Le Van

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, IPAG BUSINESS SCHOOL - IPAG BUSINESS SCHOOL PARIS, VCREME - VanXuan Center of Research in Economics, Management and Environment - VanXuan Center of Research in Economics, Management and Environment)

  • Ngoc-Sang Pham

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)

We consider a general equilibrium model with heterogeneous agents, borrowing constraints, and exogenous labor supply. First, the existence of intertemporal equilibrium is proved even if the aggregate capitals are not uniformly bounded above and the production functions are not time invariant. Second, (i) we call by physical capital bubble a situation in which the fundamental value of physical capital is lower than its price, (ii) we say that the interest rates are low if the sum of interest rates is finite. We show that physical capital bubble is equivalent to a situation with low interest rates. Last, we prove that with linear technologies, every intertemporal equilibrium is efficient. Moreover, there is a room for both efficiency and bubble.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-01020888.

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Date of creation: May 2014
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Handle: RePEc:hal:cesptp:halshs-01020888
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  1. Takashi Kamihigashi, 2001. "A Simple Proof of the Necessity of the Transversality Condition," Discussion Paper Series 116, Research Institute for Economics & Business Administration, Kobe University.
  2. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  3. Bloise, Gaetano & Reichlin, Pietro, 2008. "Asset Prices, Debt Constraints and Inefficiency," CEPR Discussion Papers 6779, C.E.P.R. Discussion Papers.
  4. Robert Becker & Stefano Bosi & Cuong Le Van & Thomas Seegmuller, 2014. "On existence and bubbles of Ramsey equilibrium with borrowing constraints," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01020635, HAL.
  5. Alberto Martin & Jaume Ventura, 2003. "Economic growth with bubbles," Economics Working Papers 848, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2011.
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  9. Aloisio Araujo & Mário R. Pascoa & Juan Pablo Torres-Martínez, 2010. "Long-lived collateralized assets and bubbles," Working Papers wp314, University of Chile, Department of Economics.
  10. Ventura, Jaume, 2012. "Bubbles and capital flows," Journal of Economic Theory, Elsevier, vol. 147(2), pages 738-758.
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  12. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
  13. Markus K. Brunnermeier & Martin Oehmke, 2012. "Bubbles, Financial Crises, and Systemic Risk," NBER Working Papers 18398, National Bureau of Economic Research, Inc.
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  15. Kehoe, Timothy J & Levine, David K, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 865-88, October.
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  17. Kocherlakota, Narayana, 2008. "Injecting rational bubbles," Journal of Economic Theory, Elsevier, vol. 142(1), pages 218-232, September.
  18. Werner, Jan, 2014. "Rational asset pricing bubbles and debt constraints," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 145-152.
  19. Cass, David, 1972. "On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization," Journal of Economic Theory, Elsevier, vol. 4(2), pages 200-223, April.
  20. Robert Becker & Stefano Bosi & Cuong Le Van & Thomas Seegmuller, 2014. "On existence and bubbles of Ramsey equilibrium with borrowing constraints," Working Papers 2014-105, Department of Research, Ipag Business School.
  21. Mitra, Tapan & Ray, Debraj, 2009. "On the Phelps-Koopmans Theorem," Working Papers 09-04, Cornell University, Center for Analytic Economics.
  22. Kevin X.D. Huang & Jan Werner, 2000. "Asset price bubbles in Arrow-Debreu and sequential equilibrium," Economic Theory, Springer, vol. 15(2), pages 253-278.
  23. Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-81, September.
  24. Cass, D & Yaari, M E, 1971. "Present Values Playing the Role of Efficiency Prices in the One-Good Growth Model," Review of Economic Studies, Wiley Blackwell, vol. 38(115), pages 331-39, July.
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