Capital Gains

Luís Aguiar-Conraria () and Karl Shell ()

Working Papers from Cornell University, Center for Analytic Economics

Abstract: Capital gains play an important, positive role in the inter-temporal allocation of resources, but they can also be a source of economic instability. We analyze a simple overlapping-generations economy with two capital goods and irreversible investment. For each vector of initial capital/labor ratios, there is one and only one trajectory on which expectations are realized at every date. If there is any deviation from this trajectory, then there is a bubble which must burst in finite time.

Date: 2006-01
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Journal Article: Capital gains (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:ecl:corcae:06-02

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