Asset Bubbles and Borrowing Constraints

38 Pages Posted: 10 May 2007

Date Written: February 26, 2007

Abstract

In this paper, we study the existence of asset bubbles in an overlapping generations economy `a la Tirole (1985) with borrowing constraints. Deriving a condition for the existence of equilibrium paths with bubbles, we demonstrate that (i) a monetary steady state (a steady state with bubbles) is constrained dynamically inefficient, whereas capital in the monetary steady state is underaccumulating relative to the quasi-golden rule, (ii) there exists a government intervention which corrects the constrained dynamic inefficiency, and (iii) for some parameter values, such a government intervention reduces the utilities of many agents, while it increases per capita consumption.

Keywords: Bubbles, Borrowing constraints, Heterogeneous agents, Constrained dynamic efficiency, Monetary policy

JEL Classification: E41, E51, O42

Suggested Citation

Kunieda, Takuma, Asset Bubbles and Borrowing Constraints (February 26, 2007). Available at SSRN: https://ssrn.com/abstract=985419 or http://dx.doi.org/10.2139/ssrn.985419

Takuma Kunieda (Contact Author)

Brown University ( email )

64 Waterman Street
Providence, RI 02912
United States

HOME PAGE: http://www.econ.brown.edu/students/Takuma_Kunieda/TakumaHome.html

Register to save articles to
your library

Register

Paper statistics

Downloads
122
Abstract Views
1,185
rank
232,173
PlumX Metrics