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On existence, efficiency and bubbles of Ramsey equilibrium with borrowing constraints

Listed author(s):
  • Robert Becker

    ()

    (Indiana University)

  • Stefano Bosi

    ()

    (EPEE, University of Evry)

  • Cuong Le Van

    ()

    (CES, CNRS, VCREME and Hanoi WRU)

  • Thomas Seegmuller

    ()

    (GREQAM, Aix-Marseille University)

We address the fundamental issues of existence and efficiency of a Ramsey equilibrium with heterogenous discounting, elastic labor supply and borrowing constraints. In the first part, we prove the equilibrium existence in a truncated bounded economy through a fixed-point argument by Gale and Mas-Colell (1975). This equilibrium is also an equilibrium of any unbounded economy with the same fundamentals. The proof of existence is eventually given for an infinite-horizon economy as a limit of a sequence of truncated economies. Our general approach is suitable for applications to other models with different market imperfections. In the second part, we show the impossibility of bubbles in a productive economy and we give sufficient conditions for equilibrium efficiency.

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File URL: http://www.iub.edu/~caepr/RePEc/PDF/2012/CAEPR2012-001.pdf
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Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2012-001.

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Length: 42 pages
Date of creation: Feb 2012
Handle: RePEc:inu:caeprp:2012-001
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