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Existence of bubbly equilibria in overlapping generations models with stochastic production

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  • Hillebrand, Marten

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.

Suggested Citation

  • Hillebrand, Marten, 2014. "Existence of bubbly equilibria in overlapping generations models with stochastic production," Working Paper Series in Economics 57, Karlsruhe Institute of Technology (KIT), Department of Economics and Management.
    • Handle: RePEc:zbw:kitwps:57
    DOI: 10.5445/IR/1000041179
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    More about this item

    Keywords

    asset bubbles; OLG; stochastic production; capital accumulation; dynamical systems; borrowing constraints;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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