On Existence and Bubbles of Ramsey Equilibrium with Borrowing Constraints

Robert Becker (1) , Stefano Bosi (2) , Cuong Le Van (3, 4, 5) , Thomas Seegmuller (6)

1 Department of Economics, Indiana University
2 EPEE - Centre d'Etudes des Politiques Economiques
3 IPAG Business School
4 VCREME - Van Xuan Center of Research in Economics, Management and Environment
5 CES - Centre d'économie de la Sorbonne
6 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille

We study the existence of equilibrium and rational bubbles in a Ramsey model with heterogeneous agents, borrowing constraints and endogenous labor. Applying a nonstandard fixed-point theorem by Gale and Mas-Colell's (1975), we prove the existence of equilibrium in a time-truncated bounded economy. A common argument shows this solution to be an equilibrium for any unbounded economy with the same fundamentals. Taking the limit of a sequence of truncated economies, we eventually obtain the existence of equilibrium in the Ramsey model. In the second part of the paper, we address the issue of rational bubbles and we prove that they never occur in a productive economy à la Ramsey.

Mots clés: heterogeneous agents; borrowing constraint; endogenous labor; existence of equilibrium; bubbles; Ramsey model

Domaines: Economies et finances

Robert Becker, Stefano Bosi, Cuong Le Van, Thomas Seegmuller. On Existence and Bubbles of Ramsey Equilibrium with Borrowing Constraints. 2013. ⟨halshs-00793530v2⟩