IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/halshs-02993656.html
   My bibliography  Save this paper

Real indeterminacy and dynamics of asset price bubbles in general equilibrium

Author

Listed:
  • Stefano Bosi

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay, Université Paris-Saclay)

  • Cuong Le Van

    (CNRS - Centre National de la Recherche Scientifique, 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, IPAG Business School, TIMAS - Institute of Mathematics and Applied Science, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Ngoc-Sang Pham

    (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie)

Abstract

We show that both real indeterminacy and asset price bubble may appear in an infinite-horizon exchange economy with infinitely lived agents and an imperfect financial market. We explain how the asset structure and heterogeneity (in terms of preferences and endowments) affect the existence and the dynamics of asset price bubbles as well as the equilibrium indeterminacy. Moreover, this paper bridges the literature on bubbles in models with infinitely lived agents and that in overlapping generations models.

Suggested Citation

  • Stefano Bosi & Cuong Le Van & Ngoc-Sang Pham, 2021. "Real indeterminacy and dynamics of asset price bubbles in general equilibrium," Working Papers halshs-02993656, HAL.
    • Handle: RePEc:hal:wpaper:halshs-02993656
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02993656v2
    as

    Download full text from publisher

    File URL: https://shs.hal.science/halshs-02993656v2/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kocherlakota, Narayana, 2008. "Injecting rational bubbles," Journal of Economic Theory, Elsevier, vol. 142(1), pages 218-232, September.
    2. Robert Becker & Stefano Bosi & Cuong Van & Thomas Seegmuller, 2015. "On existence and bubbles of Ramsey equilibrium with borrowing constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(2), pages 329-353, February.
    3. Cuong Le Van & Ngoc-Sang Pham, 2016. "Intertemporal equilibrium with financial asset and physical capital," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(1), pages 155-199, June.
    4. Martin Barbie & Marten Hillebrand, 2018. "Bubbly Markov equilibria," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(3), pages 627-679, October.
    5. Araujo, Aloisio & Novinski, Rodrigo & Páscoa, Mário R., 2011. "General equilibrium, wariness and efficient bubbles," Journal of Economic Theory, Elsevier, vol. 146(3), pages 785-811, May.
    6. Bosi, Stefano & Van, Cuong Le & Pham, Ngoc-Sang, 2018. "Intertemporal equilibrium with heterogeneous agents, endogenous dividends and collateral constraints," Journal of Mathematical Economics, Elsevier, vol. 76(C), pages 1-20.
    7. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
    8. Bosi, Stefano & Le Van, Cuong & Pham, Ngoc-Sang, 2017. "Asset bubbles and efficiency in a generalized two-sector model," Mathematical Social Sciences, Elsevier, vol. 88(C), pages 37-48.
    9. Kevin X.D. Huang & Jan Werner, 2000. "Asset price bubbles in Arrow-Debreu and sequential equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(2), pages 253-278.
    10. Bosi, Stefano & Ha-Huy, Thai & Le Van, Cuong & Pham, Cao-Tung & Pham, Ngoc-Sang, 2018. "Financial bubbles and capital accumulation in altruistic economies," Journal of Mathematical Economics, Elsevier, vol. 75(C), pages 125-139.
    11. Alberto Martin & Jaume Ventura, 2012. "Economic Growth with Bubbles," American Economic Review, American Economic Association, vol. 102(6), pages 3033-3058, October.
    12. Kehoe, Timothy J & Levine, David K, 1985. "Comparative Statics and Perfect Foresight in Infinite Horizon Economies," Econometrica, Econometric Society, vol. 53(2), pages 433-453, March.
    13. Magill, Michael & Quinzii, Martine, 1994. "Infinite Horizon Incomplete Markets," Econometrica, Econometric Society, vol. 62(4), pages 853-880, July.
    14. Kocherlakota, Narayana R., 1992. "Bubbles and constraints on debt accumulation," Journal of Economic Theory, Elsevier, vol. 57(1), pages 245-256.
    15. Kehoe, Timothy J. & Levine, David K. & Romer, Paul M., 1990. "Determinacy of equilibria in dynamic models with finitely many consumers," Journal of Economic Theory, Elsevier, vol. 50(1), pages 1-21, February.
    16. Alberto Martin & Jaume Ventura, 2018. "The Macroeconomics of Rational Bubbles: A User's Guide," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 505-539, August.
    17. Miao, Jianjun, 2014. "Introduction to economic theory of bubbles," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 130-136.
    18. Takashi Kamihigashi, 2002. "A simple proof of the necessity of the transversality condition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(2), pages 427-433.
    19. Brunnermeier, Markus K. & Oehmke, Martin, 2013. "Bubbles, Financial Crises, and Systemic Risk," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1221-1288, Elsevier.
    20. Magill, Michael & Quinzii, Martine, 1996. "Incomplete markets over an infinite horizon: Long-lived securities and speculative bubbles," Journal of Mathematical Economics, Elsevier, vol. 26(1), pages 133-170.
    21. Levine, David K. & Zame, William R., 1996. "Debt constraints and equilibrium in infinite horizon economies with incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 26(1), pages 103-131.
    22. Bosi, Stefano & Le Van, Cuong & Pham, Ngoc-Sang, 2022. "Real indeterminacy and dynamics of asset price bubbles in general equilibrium," Journal of Mathematical Economics, Elsevier, vol. 100(C).
    23. Araujo, Aloisio & Páscoa, Mário R. & Torres-Martínez, Juan Pablo, 2011. "Long-lived collateralized assets and bubbles," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 260-271.
    24. Tomohiro Hirano & Noriyuki Yanagawa, 2017. "Asset Bubbles, Endogenous Growth, and Financial Frictions," Review of Economic Studies, Oxford University Press, vol. 84(1), pages 406-443.
    25. Roger E A Farmer, 2019. "The Indeterminacy Agenda in Macroeconomics," National Institute of Economic and Social Research (NIESR) Discussion Papers 507, National Institute of Economic and Social Research.
    26. repec:oup:restud:v:84:y::i:1:p:406-443. is not listed on IDEAS
    27. Ljungqvist, Lars & Sargent, Thomas J., 2012. "Recursive Macroeconomic Theory, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262018748, December.
    28. Luigi Montrucchio, 2004. "Cass transversality condition and sequential asset bubbles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(3), pages 645-663, October.
    29. Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-1181, September.
    30. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448, Elsevier.
    31. Jianjun Miao & Pengfei Wang, 2018. "Asset Bubbles and Credit Constraints," American Economic Review, American Economic Association, vol. 108(9), pages 2590-2628, September.
    32. Jordi Gal?, 2014. "Monetary Policy and Rational Asset Price Bubbles," American Economic Review, American Economic Association, vol. 104(3), pages 721-752, March.
    33. Mário Páscoa & Myrian Petrassi & Juan Torres-Martínez, 2011. "Fiat money and the value of binding portfolio constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(2), pages 189-209, February.
    34. Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
    35. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    36. Bloise, G. & Citanna, A., 2019. "Asset shortages, liquidity and speculative bubbles," Journal of Economic Theory, Elsevier, vol. 183(C), pages 952-990.
    37. Antonio Doblas‐Madrid, 2012. "A Robust Model of Bubbles With Multidimensional Uncertainty," Econometrica, Econometric Society, vol. 80(5), pages 1845-1893, September.
    38. Jordi Galí, 2021. "Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(2), pages 121-167, April.
    39. Jianjun Miao & Pengfei Wang, 2012. "Bubbles and Total Factor Productivity," American Economic Review, American Economic Association, vol. 102(3), pages 82-87, May.
    40. repec:pri:metric:wp047_2012_brunnermeier_ssrn-id2103814.pdf is not listed on IDEAS
    41. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
    42. Werner, Jan, 2014. "Rational asset pricing bubbles and debt constraints," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 145-152.
    43. Scheinkman, Jose A & Weiss, Laurence, 1986. "Borrowing Constraints and Aggregate Economic Activity," Econometrica, Econometric Society, vol. 54(1), pages 23-45, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pablo A. Guerron-Quintana & Tomohiro Hirano & Ryo Jinnai, 2019. "Recurrent Bubbles and Economic Growth," CARF F-Series CARF-F-457, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    2. Bosi, Stefano & Le Van, Cuong & Pham, Ngoc-Sang, 2022. "Real indeterminacy and dynamics of asset price bubbles in general equilibrium," Journal of Mathematical Economics, Elsevier, vol. 100(C).
    3. Pablo A. Guerron-Quintana & Tomohiro Hirano & Ryo Jinnai, 2021. "Bubbles, Crashes, Ups and Downs in Economic Growth Theory and Evidence," CIGS Working Paper Series 21-006E, The Canon Institute for Global Studies.
    4. Stefano Bosi & Thai Ha‐Huy & Cao‐Tung Pham & Ngoc‐Sang Pham, 2022. "Ascendant altruism and asset price bubbles," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(4), pages 532-551, December.
    5. Pham, Ngoc-Sang, 2023. "Intertemporal equilibrium with physical capital and financial asset: Role of dividend taxation," Mathematical Social Sciences, Elsevier, vol. 123(C), pages 95-104.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bosi, Stefano & Van, Cuong Le & Pham, Ngoc-Sang, 2018. "Intertemporal equilibrium with heterogeneous agents, endogenous dividends and collateral constraints," Journal of Mathematical Economics, Elsevier, vol. 76(C), pages 1-20.
    2. Bosi, Stefano & Le Van, Cuong & Pham, Ngoc-Sang, 2017. "Asset bubbles and efficiency in a generalized two-sector model," Mathematical Social Sciences, Elsevier, vol. 88(C), pages 37-48.
    3. Bidian, Florin, 2015. "Portfolio constraints, differences in beliefs and bubbles," Journal of Mathematical Economics, Elsevier, vol. 61(C), pages 317-326.
    4. Stefano Bosi & Cuong Le Van & Ngoc-Sang Pham, 2017. "Rational Land and Housing Bubbles in Infinite-Horizon Economies," Studies in Economic Theory, in: Kazuo Nishimura & Alain Venditti & Nicholas C. Yannelis (ed.), Sunspots and Non-Linear Dynamics, chapter 0, pages 203-230, Springer.
    5. Hirano, Tomohiro & Toda, Alexis Akira, 2024. "Bubble economics," LSE Research Online Documents on Economics 122042, London School of Economics and Political Science, LSE Library.
    6. Stefano Bosi & Cuong Le Van & Ngoc-Sang Pham, 2014. "Intertemporal equilibrium with production: bubbles and efficiency," Post-Print halshs-01020888, HAL.
    7. Stefano Bosi & Thai Ha‐Huy & Cao‐Tung Pham & Ngoc‐Sang Pham, 2022. "Ascendant altruism and asset price bubbles," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(4), pages 532-551, December.
    8. Pham, Ngoc-Sang, 2017. "Assets with possibly negative dividends," MPRA Paper 78193, University Library of Munich, Germany.
    9. Stefano Bosi & Cuong Le Van & Ngoc-Sang Pham, 2015. "Intertemporal equilibrium with heterogeneous agents, endogenous dividends, and borrowing constraints," Documents de recherche 15-05, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    10. Bosi, Stefano & Ha-Huy, Thai & Le Van, Cuong & Pham, Cao-Tung & Pham, Ngoc-Sang, 2018. "Financial bubbles and capital accumulation in altruistic economies," Journal of Mathematical Economics, Elsevier, vol. 75(C), pages 125-139.
    11. Bidian, Florin, 2016. "Robust bubbles with mild penalties for default," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 141-153.
    12. Pham, Ngoc-Sang, 2023. "Intertemporal equilibrium with physical capital and financial asset: Role of dividend taxation," Mathematical Social Sciences, Elsevier, vol. 123(C), pages 95-104.
    13. Miao, Jianjun, 2014. "Introduction to economic theory of bubbles," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 130-136.
    14. Werner, Jan, 2014. "Rational asset pricing bubbles and debt constraints," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 145-152.
    15. Tomohiro Hirano & Ryo Jinnai & Alexis Akira Toda, 2022. "Leverage, Endogenous Unbalanced Growth, and Asset Price Bubbles," Papers 2211.13100, arXiv.org, revised Feb 2024.
    16. Michau, Jean-Baptiste & Ono, Yoshiyasu & Schlegl, Matthias, 2023. "Wealth preference and rational bubbles," European Economic Review, Elsevier, vol. 156(C).
    17. Cuong Le Van & Ngoc-Sang Pham, 2016. "Intertemporal equilibrium with financial asset and physical capital," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(1), pages 155-199, June.
    18. Jordi Galí, 2016. "Monetary policy and bubbles in a new Keynesian model with overlapping generations," Economics Working Papers 1561, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2020.
    19. Pablo A. Guerron-Quintana & Tomohiro Hirano & Ryo Jinnai, 2021. "Bubbles, Crashes, Ups and Downs in Economic Growth Theory and Evidence," CIGS Working Paper Series 21-006E, The Canon Institute for Global Studies.
    20. Robert Becker & Stefano Bosi & Cuong Van & Thomas Seegmuller, 2015. "On existence and bubbles of Ramsey equilibrium with borrowing constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(2), pages 329-353, February.

    More about this item

    Keywords

    intertemporal equilibrium; borrowing constraint; real indeterminacy; asset price bubble;
    All these keywords.

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:halshs-02993656. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.