Long-lived Collateralized Assets and Bubbles

Abstract

When infinite-lived agents trade long-lived assets secured by durable goods, equilibrium exists without any additional debt constraints or uniform impatience conditions on agents' characteristics. Also, regardless of whether assets' net supply is positive or zero, price bubbles are absent when physical endowments are uniformly bounded away from zero. Otherwise, bubbles may occur, even for assets in persistently positive net supply and for deflators yielding finite present values of aggregate wealth.