Existence of bubbly equilibria in overlapping generations models with stochastic production

The paper develops a dynamical systems approach to study asset bubbles in OLG economies with stochastic production. We derive necessary and sufficient conditions for bubbly equilibria to exist and characterize the maximum sustainable bubble. Even if they exist, bubbles are temporary and the economy converges to a bubbleless equilibrium with probability one. We also demonstrate that the existence conditions can be relaxed if frictions such as borrowing constrains are introduced.