Existence and Uniqueness of Monetary Steady-State Equilibrium in a Three-Sector OLG Economy

Abstract

An economic bubble is ”trade in high volumes at prices that are considerably at variance with intrinsic values”. In this paper, we provide conditions for the existence and uniqueness of monetary steady-state equilibrium (a steady state equilibrium with asset bubbles) in a three-sector overlapping generations(OLG) model. By employing the modern portfolio theory, we introduce asset bubbles into the growth model and set a three-sector OLG economy. Key factors that affect the existence and uniqueness of the steady state equilibrium with bubbles in this system are the exogenous risks, exogenous returns and uncorrelationship between the asset bubbles and investment goods. In addition, we show the effectiveness and feasibility of the developed methods in the system with explicit functions.