Existence and uniqueness of equilibrium in Lucas' asset pricing model when utility is unbounded
Title: Existence and uniqueness of equilibrium in Lucas' asset pricing model when utility is unbounded
Series/Number: EUI ECO; 2015/02
This note proves existence of a unique equilibrium in a Lucas (1978) economy when the utility function displays constant relative risk aversion and log dividends follow a normally distributed AR(1) process with positive auto-correlation. In particular, the note provides restrictions on the coefficient of relative risk aversion, the discount factor and the conditional variance of the consumption process that ensure existence of a unique equilibrium.
Subject: Asset pricing; Exchange economy; Dynamic programming; Equilibrium conditions; C61; C62; D51; G12
Type of Access: openAccess