SFB 303 Discussion Paper No. A - 319

Author: Drees, Burkhard, und Bernhard Eckwert
Title: The Price Volatility of Bubbly and Non-Bubbly Assets when Agents have Non-Time-Separable Preferences
Abstract: A bubbly asset should be expected riskier than stocks which represent claims to the real resources of an economy. Since empirical evidence suggests that fiat money, which is a bubbly asset if traded at a positive price, possesses a much less volatile real price than stocks, there is a question as to whether these two aspects can be reconciled within a general equilibrium framework. This paper shows that a reconciliation can be achieved if individuals are sufficiently risk averse (degree of relative risk aversion larger than one) and if their preferences exhibit risk complementarity.
Creation-Date: September 1990
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