On Fragility of Bubbles in Equilibrium Asset Pricing Models of Lucas-Type

Luigi Montrucchio and Fabio Privileggi

ICER Working Papers - Applied Mathematics Series from ICER - International Centre for Economic Research

Abstract: In this paper we study the existence of bubbles for pricing equilibria in a pure exchange economy à la Lucas, with infinitely lived homogeneous agents. The model is analyzed under fairly general assumptions: no restrictions either on the stochastic process governing dividends distribution or on the utilities (possibly unbounded) are required. We prove that the pricing equilibrium is unique as long as the agents exhibit uniformly bounded relative risk aversion. A generic uniqueness result is also given regardless of agent’s preferences. A few ”pathological” examples of economies exhibiting pricing equilibria with bubble components are constructed. Finally, a possible relationship between our approach and the theory developed by Santos and Woodford on ambiguous bubbles is investigated. The whole discussion sheds more insight on the common belief that bubbles are a marginal phenomenon in such models.

JEL-codes: C61 C62 D51 G12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2001-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

Downloads: (external link)
http://www.bemservizi.unito.it/repec/icr/wp2001/Montrucchio5-01.pdf (application/pdf)

Related works:
Journal Article: On Fragility of Bubbles in Equilibrium Asset Pricing Models of Lucas-Type (2001)
Working Paper: On Fragility of Bubbles in Equilibrium Asset Pricing Models of Lucas-Type (1999)
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:icr:wpmath:05-2001

Access Statistics for this paper

More papers in ICER Working Papers - Applied Mathematics Series from ICER - International Centre for Economic Research Corso Unione Sovietica, 218bis - 10134 Torino - Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Daniele Pennesi ().