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Ramsey Equilibrium with Liberal Borrowing

Robert Becker, Kirill Borissov () and Ram Dubey ()

No 2015/02, EUSP Department of Economics Working Paper Series from European University at St. Petersburg, Department of Economics

Abstract: This paper considers a multi-agent one-sector Ramsey equilibrium growth model with borrowing constraints. The extreme borrowing constraint used in the classical version of the model, surveyed in Becker (2006), and the limited form of borrowing constraint examined in Borissov and Dubey (2015) are relaxed to allow more liberal borrowing by the households. A perfect foresight equilibrium is shown to exist in this economy. Each equilibrium's aggregate capital stock sequence is eventually monotonic and is shown to converge to the unique stationary equilibrium capital stock and the impatient households are eventually in the maximum borrowing state and remain so for all subsequent periods, whereas the most patient household eventually owns the entire capital stock and the other households debts. This convergence result is unlike the possibility of non-convergent equilibrium capital stock sequences in the model with no borrowing and like the equilibrium outcomes in the model with limited borrowing. Here, the convergence theorem is independent of the production technology employed by the firms. As the borrowing regime is progressively liberalized, the Gini coefficient of steady state wealth distribution increases.

Keywords: convergence; existence; Gini coefficient; growth; heterogeneous agent; liberal borrowing; turnpike property (search for similar items in EconPapers)
JEL-codes: C61 D61 D90 O41 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2015-05-19
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