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Capital price bubbles and dynamic inefficiency

Gerhard Sorger ()

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: We demonstrate that the price of physical capital in standard neoclassical one-sector growth models can exceed its fundamental value, that is, a capital price bubble can exist. It is furthermore shown that the existence of a capital price bubble is in general unrelated to the dynamic ine?ciency of equilibrium. We illustrate these results in the contexts of the Ramsey-Cass-Koopmans model with ?nitely many in?nitely-lived dynasties of households, the Blanchard-Yaari model with in?nitely many overlapping generations of ?nitely-lived households, and the Solow-Swan model without microfoundation. Our ?ndings are in contrast to those derived by Tirole [17] and they are complementary to those from Kocherlakota [8] and Tirole [18].

JEL-codes: O41 G10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2018-02
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