Title

A Simple No-Bubble Theorem

Abstract

This paper establishes a simple no-bubble theorem that applies to a wide range of deterministic models with infinitely lived consumers. Our model assumes only a sequential budget constraint and strictly monotone preferences. In this general setup, we show that asset bubbles are impossible if a consumer can reduce his asset holdings permanently. This is a substantial generalization of the result of Kocherlakota (1992) on asset bubbles and short-sales constraints.

Inquiries

Takashi KAMIHIGASHI
Research Institute for Economics and Business Administration,
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059