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2019•Munich Personal RePEc Archive (Ludwig Maximilian University of Munich)Open access

Real indeterminacy and dynamics of asset price bubbles in general equilibrium

Cuong Le Van, Ngoc‐Sang Pham, Stefano Bosi

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Abstract

We show that both real indeterminacy and asset price bubble may appear in an infinite-horizon exchange economy with infinitely lived agents and an imperfect financial market. We clarify how the asset structure and heterogeneity \n(in terms of preferences and endowments) affect the existence and the dynamics of asset price bubbles as well as the equilibrium indeterminacy. Moreover, this paper bridges the literature on bubbles in models with infinitely lived agents \nand that in overlapping generations models (Tirole, 1985).

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We show that both real indeterminacy and asset price bubble may appear in an infinite-horizon exchange economy with infinitely lived agents and an imperfect financial market. We clarify how the asset structure and heterogeneity \n(in terms of preferences and endowments) affect the existence and the dynamics of asset price bubbles as well as the equilibrium indeterminacy. Moreover, this paper bridges the literature on bubbles in models with infinitely lived agents \nand that in overlapping generations models (Tirole, 1985).

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Available abstract

We show that both real indeterminacy and asset price bubble may appear in an infinite-horizon exchange economy with infinitely lived agents and an imperfect financial market. We clarify how the asset structure and heterogeneity \n(in terms of preferences and endowments) affect the existence and the dynamics of asset price bubbles as well as the equilibrium indeterminacy. Moreover, this paper bridges the literature on bubbles in models with infinitely lived agents \nand that in overlapping generations models (Tirole, 1985).

Key concepts: Indeterminacy (philosophy), Economics, Asset (computer security), Imperfect, Economic bubble, Exchange economy, Overlapping generations model, General equilibrium theory

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