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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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    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. Menahem E. Yaari, 1965. "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(2), pages 137-150.
    4. 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.
    5. 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.
    6. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-247, April.
    7. 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.
    8. 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.
    9. 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.

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    More about this item

    Keywords

    overlapping generations; asset pricing; bubbles; integral equations; LambertW function;
    All these keywords.

    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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