Capital gains

Luís Aguiar‐Conraria and Karl Shell ()
Authors registered in the RePEc Author Service: Luís Aguiar-Conraria ()

International Journal of Economic Theory, 2006, vol. 2, issue 3‐4, 331-349

Abstract: We analyze a simple overlapping‐generations model with two capital goods. The dynamical system is defined by savings behavior and short‐run perfect‐foresight asset‐market clearing. Because lifetimes are finite, there is no transversality condition. If there is a bubble in asset pricing, it will burst in finite time: expectations will eventually be frustrated, but this might take several generations. This raises the question of whether (infinite) long‐run perfect foresight is a reasonable assumption for overlapping‐generations economies and, hence, whether bursting bubbles can occur in equilibrium.

Date: 2006
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Citations: View citations in EconPapers (4)

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https://doi.org/10.1111/j.1742-7363.2006.0039.x

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Working Paper: Capital Gains (2006)
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