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Equilibrium asset prices and bubbles in a continuous time OLG model

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  • Brito, Paulo

Abstract

In a Yaari-Blanchard overlapping generations endowment economy, and drawing on the equivalence between Radner (R) and Arrow-Debreu (AD) equi- libria, we prove that equilibrium AD prices have an explicit representation as a double integral equation. This allows for an analytic characterization of the relationship between life-cycle and cohort heterogeneity and asset prices. For a simple distribution, we prove that bubbles may exist, and derive conditions for ruling them out.

Suggested Citation

  • Brito, Paulo, 2008. "Equilibrium asset prices and bubbles in a continuous time OLG model," MPRA Paper 10701, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:10701
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    File URL: https://mpra.ub.uni-muenchen.de/10701/1/MPRA_paper_10701.pdf
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    References listed on IDEAS

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    1. Shell, Karl, 1971. "Notes on the Economics of Infinity," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1002-1011, Sept.-Oct.
    2. John Geanakoplos, 2008. "Overlapping Generations Models of General Equilibrium," Levine's Working Paper Archive 122247000000002225, David K. Levine.
    3. David Cass & Menahem E. Yaari, 1965. "Individual Saving, Aggregate Capital Accumulation, and Efficient Growth," Cowles Foundation Discussion Papers 198, Cowles Foundation for Research in Economics, Yale University.
    4. Brito, Paulo & Dilão, Rui, 2010. "Equilibrium price dynamics in an overlapping-generations exchange economy," Journal of Mathematical Economics, Elsevier, vol. 46(3), pages 343-355, May.
    5. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-247, April.
    6. S. Demichelis & H. Polemarchakis, 2007. "The determinacy of equilibrium in economies of overlapping generations," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(3), pages 461-475, September.
    7. Geanakoplos, John D. & Polemarchakis, Heraklis M., 1991. "Overlapping generations," Handbook of Mathematical Economics,in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 35, pages 1899-1960 Elsevier.
    8. John Geanakoplos, 2008. "Overlapping Generations Models of General Equilibrium," Cowles Foundation Discussion Papers 1663, Cowles Foundation for Research in Economics, Yale University.
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    Cited by:

    1. Brito, Paulo, 2014. "Interest rates and endogenous population growth: joint age-dependent dynamics," MPRA Paper 58656, University Library of Munich, Germany.

    More about this item

    Keywords

    overlapping generations; asset pricing; bubbles; integral equations; LambertW function;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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