Existence of bubbly equilibria in overlapping generations models with stochastic production

Marten Hillebrand

No 57, Working Paper Series in Economics from Karlsruhe Institute of Technology (KIT), Department of Economics and Management

Abstract: The paper develops a dynamical systems approach to study asset bubbles in OLG economies with stochastic production. We derive necessary and sufficient conditions for bubbly equilibria to exist and chracterize the maximum sustainable bubble. Even if they exist, bubbles are temporary and the economy converges to a bubbleless equilibrium with probability one. We also demonstrate that the existence conditions can be relaxed if frictions such as borrowing constraints are introduced.

Keywords: asset bubbles; OLG; stochastic production; capital accumulation; dynamical systems; borrowing constraints (search for similar items in EconPapers)
JEL-codes: C61 C62 E23 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kitwps:57

DOI: 10.5445/IR/1000041179

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