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Asset Markets and Equilibrium Processes

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  • Dutta, Jayasri
  • Polemarchakis, Herakles

Abstract

The failure of the asset market to be complete causes serial dependence in output and prices, which is suboptimal. The authors consider an economy with white noise shocks. When the asset market is complete, an optimal, competitive allocation inherits this strong stationarity. When the asset market is only sequentially complete, prices and output necessarily display serial dependence at equilibrium. The further incompleteness of a monetary economy explains comovements in real and nominal variables. Copyright 1990 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 57 (1990)
Issue (Month): 2 (April)
Pages: 229-54

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Handle: RePEc:bla:restud:v:57:y:1990:i:2:p:229-54

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Cited by:
  1. Barbie, Martin & Hagedorn, Marcus & Kaul, Ashok, 2001. "Government Debt as Insurance against Macroeconomic Risk," IZA Discussion Papers 412, Institute for the Study of Labor (IZA).
  2. Martin Barbie & Marcus Hagedorn & Ashok Kaul, 2000. "mic Efficiency and Pareto Optimality in a Stochastic OLG Model with Production and Social Security," Bonn Econ Discussion Papers bgse8_2000, University of Bonn, Germany, revised Jun 2000.
  3. Sujoy Mukerji & Jean-Marc Tallon, 2000. "Ambiguity Aversion and Incompleteness of Financial Markets," Economics Series Working Papers 46, University of Oxford, Department of Economics.
  4. Chattopadhyay, Subir & Gottardi, Piero, 1999. "Stochastic OLG Models, Market Structure, and Optimality," Journal of Economic Theory, Elsevier, vol. 89(1), pages 21-67, November.
  5. Barbie, Martin & Hagedorn, Marcus & Kaul, Ashok, 2000. "Dynamic Efficiency and Pareto Optimality in a Stochastic OLG Model with Production and Social Security," IZA Discussion Papers 209, Institute for the Study of Labor (IZA).
  6. repec:hal:cesptp:halshs-00174539 is not listed on IDEAS

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