Real indeterminacy and dynamics of asset price bubbles in general equilibrium

Abstract

In a simple infinite-horizon exchange economy with a single consumption good and a financial asset, real indeterminacy and asset price bubble may arise. We show how heterogeneity (in terms of preferences, endowments) and short-sale constraints affect the emergence and the dynamics of asset price bubbles as well as the equilibrium indeterminacy. We also bridge the literature of bubbles in models with infinitely lived agents and that in OLG models