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On existence and bubbles of Ramsey equilibrium with borrowing constraints

  • Robert Becker
  • Stefano Bosi
  • Cuong Le Van
  • Thomas Seegmuller

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 Department of Research, Ipag Business School in its series Working Papers with number 2014-105.

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Date of creation: 01 Jan 2014
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Handle: RePEc:ipg:wpaper:2014-105
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  1. Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-81, September.
  2. Stefano Bosi & Thomas Seegmuller, 2007. "On the Ramsey Equilibrium with heterogeneous consumers and endogenous labor supply," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00143421, HAL.
  3. Jaume Ventura and Alberto Martín, 2010. "Economic Growth with Bubbles," Working Papers 445, Barcelona Graduate School of Economics.
  4. Florenzano, Monique & Gourdel, Pascal, 1993. "Incomplete markets in infinite horizon : debt constraints versus node prices," CEPREMAP Working Papers (Couverture Orange) 9329, CEPREMAP.
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  8. Robert Becker & Ram Dubey & Tapan Mitra, 2014. "On Ramsey equilibrium: capital ownership pattern and inefficiency," Economic Theory, Springer, vol. 55(3), pages 565-600, April.
  9. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
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  13. Woodford, Michael & Santos, Manuel S., 1995. "Rational asset pricing bubbles," UC3M Working papers. Economics 3913, Universidad Carlos III de Madrid. Departamento de Economía.
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  18. Robert A. Becker, 2012. "Optimal growth with heterogeneous agents and the twisted turnpike: An example," International Journal of Economic Theory, The International Society for Economic Theory, vol. 8(1), pages 27-47, 03.
  19. Sorger, Gerhard, 2002. "On the Long-Run Distribution of Capital in the Ramsey Model," Journal of Economic Theory, Elsevier, vol. 105(1), pages 226-243, July.
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