A Simple No-Bubble Theorem for Deterministic Dynamic Economies

Takashi Kamihigashi

No DP2015-24, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: In this paper we show a simple no-bubble theorem that applies to a wide range of deterministic economies with in nitely lived agents. In particular, we show that asset bubbles are impossible if there is at least one agent who can reduce his asset holdings permanently from some period onward. This is a substantial generalization of Kocherlakota's (1992, Journal of Economic Theory 57, 245-256) result on asset bubbles and short sales constraints; our result requires virtually no assumption except for the strict monotonicity of preferences. We also provide a substantial generalization of his result on asset bubbles and the present value of a single agent's endowment. As a consequence of these results, we extend Huang and Werner's (2000, Economic Theory 15, 253-278) no-bubble theorem to an economy with multiple assets.

Pages: 34 pages
Date: 2015-06
New Economics Papers: this item is included in nep-mic
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