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On existence and bubbles of Ramsey equilibrium with borrowing constraints

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

We address the issues of existence of Ramsey equilibrium under bor- rowing constraints and occurrence of rational bubbles. First, we consider a time-truncated economy. Since the feasible allo- cations sets of our economy are uniformly bounded, we prove that there exists an equilibrium in a time-truncated bounded economy by Gale and Mas-Colell's (1975) theorem. Actually, this equilibrium turns out to be an equilibrium for the time-truncated economy as the uniform bounds are relaxed, as is commonly shown in general equilibrium proofs of existence for ffnite-dimensional commodity spaces. Second, we take the limit of a sequence of truncated, unbounded economies, and prove the existence of an intertemporal equilibrium in the limit economy. Third, rational bubbles never occur in our productive economy.

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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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Length: 23 pages
Date of creation: 25 Feb 2014
Date of revision:
Handle: RePEc:ipg:wpaper:2014-105
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  3. Jaume Ventura & Alberto Martin, 2010. "Economic Growth with Bubbles," Working Papers 445, Barcelona Graduate School of Economics.
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  5. LE VAN, Cuong & VAILAKIS, Yiannis, . "Existence of a competitive equilibrium in a one sector growth model with heterogeneous agents and irreversible investment," CORE Discussion Papers RP -1762, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  7. Robert Becker & Ram Sewak Dubey & Tapan Mitra, 2012. "On Ramsey Equilibrium: Capital Ownership Pattern and Inefficiency," Caepr Working Papers 2012-007, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  8. Coles, Jeffrey L., 1986. "Equilibrium turnpike theory with time-separable utility," Journal of Economic Dynamics and Control, Elsevier, vol. 10(3), pages 367-394, September.
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  12. Mitra, Tapan, 1979. "On Optimal Economic Growth with Variable Discount Rates: Existence and Stability Results," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(1), pages 133-45, February.
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  18. Farhi, Emmanuel & Tirole, Jean, 2009. "Bubbly Liquidity," IDEI Working Papers 577, Institut d'Économie Industrielle (IDEI), Toulouse, revised Feb 2011.
  19. Cuong Le Van & Manh-Hung Nguyen & Yiannis Vailakis, 2007. "Equilibrium dynamics in an aggregative model of capital accumulation with heterogeneous agents and elastic labor," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00101237, HAL.
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  21. Sorger, Gerhard, 1994. "On the Structure of Ramsey Equilibrium: Cycles, Indeterminacy, and Sunspots," Economic Theory, Springer, vol. 4(5), pages 745-64, August.
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