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Disaggregation of excess demand and comparative statics with incomplete markets and nominal assets

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  • Thorsten Hens

    ()
    (Department of Economics, University of Bielefeld, Postfach 100 131, D-33501 Bielefeld, GERMANY)

  • Piero Gottardi

    (Dipartimento di Scienze Economiche, University of Venice, Venice, ITALY)

Abstract

We prove that locally, Walras' law and homogeneity characterize the structure of market excess demand functions when financial markets are incomplete and assets' returns are nominal. The method of proof is substantially different from all existing arguments as the properties of individual demand are also different. We show that this result has important implications and is part of a more general result that excess demand is an essentially arbitrary function not just of prices, but also of the exogenous parameters of the economy as asset returns, preferences, and endowments. Thus locally the equilibrium manifold, relating equilibrium prices to these parameters has also no structure.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 13 (1999)
Issue (Month): 2 ()
Pages: 287-308

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Handle: RePEc:spr:joecth:v:13:y:1999:i:2:p:287-308

Note: Received: September 17, 1996; revised version: November 7, 1997
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Related research

Keywords: Excess demand functions · Incomplete markets.;

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Cited by:
  1. Hens, Thorsten, 2001. "An extension of Mantel (1976) to incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 36(2), pages 141-149, November.
  2. Sergio Turner, 2006. "Theory of Demand in Incomplete Markets," Working Papers 2006-07, Brown University, Department of Economics.
  3. Takeshi Momi, . "Excess Demand Functions with Incomplete Markets - A Global Result," IEW - Working Papers 096, Institute for Empirical Research in Economics - University of Zurich.
  4. Hara, Chiaki, 2011. "Pareto improvement and agenda control of sequential financial innovations," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 336-345.
  5. Thorsten Hens, . "An Extension of Mantel (1976) to Incomplete Markets," IEW - Working Papers 071, Institute for Empirical Research in Economics - University of Zurich.
  6. Sergio Turner, 2006. "Pareto Improving Financial Innovation in Incomplete Markets," Working Papers 2006-10, Brown University, Department of Economics.
  7. Momi, Takeshi, 2010. "Excess demand function around critical prices in incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 46(3), pages 293-302, May.
  8. Momi, Takeshi, 2009. "Excess demand functions when new assets are introduced," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1832-1843, July.
  9. Piero Gottardi & Andreu Mas-Colell, 1999. "A Note on the Decomposition (at a Point) of Aggregate Excess Demand on the Grassmannian," Working Papers 99-11, Brown University, Department of Economics.
  10. Gottardi, Piero & Mas-Colell, Andreu, 2000. "A note on the decomposition (at a point) of aggregate excess demand on the Grassmannian1," Journal of Mathematical Economics, Elsevier, vol. 33(4), pages 463-473, May.
  11. JÊrÆme B. Detemple & Piero Gottardi, 1998. "Aggregation, efficiency and mutual fund separation in incomplete markets," Economic Theory, Springer, vol. 11(2), pages 443-455.
  12. Chiaki Hara, 2010. "Pareto Improvement and Agenda Control of Sequential Financial Innovations," KIER Working Papers 748, Kyoto University, Institute of Economic Research.

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