Efficient Ramsey Equilibria

Ramsey equilibrium models with heterogeneous agents and borrowing constraints are shown to yield efficient equilibrium sequences of aggregate capital and consumption. The proof of this result is based on verifying that equilibrium sequences of prices satisfy the Malinvaud criterion for efficiency.

Asset prices, debt constraints and inefficiency

In this paper, we consider economies with (possibly endogenous) solvency constraints under uncertainty. Constrained ine±ciency corresponds to a feasible redistribution yielding a welfare improvement beginning from ev- ery contingency reached by the economy. A sort of Cass Criterion (Cass [10]) completely characterizes constrained ine±ciency. This criterion involves only observable prices and requires low interest rates in the long-run, exactly as in economies with overlapping generations. In addition, when quantitative limits to liabilities arise from participation constraints, a feasible welfare im- provement, subject to participation, coincides with the introduced notion of constrained ine±ciency.Private debt; solvency constraints; default; Cass Criterion; asset

Asset Prices, Debt Constraints and Inefficiency

In this paper, we consider economies with (possibly endogenous) solvency constraints under uncertainty. Constrained ine±ciency corresponds to a feasible redistribution yielding a welfare improvement beginning from every contingency reached by the economy. A sort of Cass Criterion (Cass [10]) completely characterizes constrained inefficiency. This criterion involves only observable prices and requires low interest rates in the long-run, exactly as in economies with overlapping generations. In addition, when quantitative limits to liabilities arise from participation constraints, a feasible welfare improvement, subject to participation, coincides with the introduced notion of constrained inefficiency.In this paper, we consider economies with (possibly endogenous) solvency constraints under uncertainty. Constrained ine±ciency corresponds to a feasible redistribution yielding a welfare improvement beginning from every contingency reached by the economy. A sort of Cass Criterion (Cass [10]) completely characterizes constrained inefficiency. This criterion involves only observable prices and requires low interest rates in the long-run, exactly as in economies with overlapping generations. In addition, when quantitative limits to liabilities arise from participation constraints, a feasible welfare improvement, subject to participation, coincides with the introduced notion of constrained inefficiency.Non-Refereed Working Papers / of national relevance onl

An Empirical Comparison of Interest and Growth Rates

This paper investigates methods of assessing dynamic efficiency, points out their shortcomings and develops a new criterion of determining whether or not an economy accumulates too much capital. This criterion is then applied to the OECD countries as well as China. The analysis sheds a new light on recent proposals of raising public debt levels during a time of low interest rates

The Cass criterion, the net dividend criterion, and optimality

Abel, Mankiw, Summers, and Zeckhauser [Assessing dynamic efficiency: theory and evidence, Rev. Econ. Stud. 56 (1989) 1-20] propose the net dividend criterion as an easy to use sufficient condition for optimality in general stochastic overlapping generations economies with production. We provide examples based on the criterion due to Cass [On capital overaccumulation in the aggregative neoclassical model of economic growth: a complete characterization, J. Econ. Theory 4 (1972) 200-223] and its extensions, the usual tools for such problems, to show that the net dividend criterion need not give the right answer. We identify the flaw in their proof. We also provide an alternative condition which, by an argument unrelated to theirs, is a sufficient condition for optimality when dividends are nonnegative and then argue that the condition is not innocuous since it cannot be verified in actual economies.