Nonshiftable capital, affine price expectations and convergence to the Golden Rule

Article Abstract:

The paper aims to tackle the question of whether the stock market has an effect on the process of capital accumulation. An overlapping generations model is studied with production, assuming that capital investment is totally irreversible, i.e. that installed capital cannot be converted back into consumption good or transferred between firms. It is proven that the financial price of a firm can be less than the replacement value of its capital without resulting in arbitrage or lessening investing incentives. The implications of such a finding are discussed, and the two steady-states of stock market dynamics, the Diamond steady-state and the Golden Rule, are examined.

United Kingdom, Strategy & planning, Planning, Capital investments, Company business planning, Capital, Stock markets, Stock market, Capital investment

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A note on incomplete markets

Article Abstract:

Incomplete markets inherently have an equilibrium. This can be proven in a model that includes agents' fixed preferences in an incomplete market economy, but with varied initial endowments in a Euclidian economy. Findings show that in a two-period pure exchange economy for every market subset, there corresponds a real positive constant that is solely dependent on the subset. The Lebesgue measure of the markets in the subset has a specific minimal and maximum value for equilibria.

Economics, Research and Development in the Social Sciences and Humanities, Models, Usage, Markets (Economics), Equilibrium (Economics), Measure theory

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