Positivity and bubbles in overlapping generations models

Stephen LeRoy

Economics Bulletin, 2005, vol. 7, issue 4, 1-4

Abstract: Bubbles, such as money, cannot be valued in efficient equilibria in overlapping generations models (a borderline case aside). Analysts frequently attribute this result to the fact that if bubbles were valued, the bubble must eventually exceed the endowment of the young. This implies negative consumption by the young, invalidating the equilibrium path. This argument is misleading because it depends on the assumption that negative consumption is infeasible. But negative consumption is admissible under some utility functions, raising questions about the generality of the argument. To investigate this, we characterize equilibrium in an overlapping generations model with negative exponential utility, which allows negative consumption. We show that if the endowment allocation is Pareto optimal, equilibrium paths incorporating valued money at some date eventually reach a point at which the equilibrium path has no continuation.

JEL-codes: D9 G0 (search for similar items in EconPapers)
Date: 2005-04-17
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.accessecon.com/pubs/EB/2005/Volume7/EB-05G00002A.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-05g00002

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().