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Equilibrium asset prices and bubbles in a continuous time OLG model

Brito, Paulo (2008): Equilibrium asset prices and bubbles in a continuous time OLG model.

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Abstract

In a Yaari-Blanchard overlapping generations endowment economy, and drawing on the equivalence between Radner (R) and Arrow-Debreu (AD) equi- libria, we prove that equilibrium AD prices have an explicit representation as a double integral equation. This allows for an analytic characterization of the relationship between life-cycle and cohort heterogeneity and asset prices. For a simple distribution, we prove that bubbles may exist, and derive conditions for ruling them out.

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