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The Structure of the Set of Sunspot Equilibria in Economies with Incomplete Financial Markets

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  • Pietra, Tito

Abstract

This paper considers the set of equilibria of two-period, sunspot economies with "S" purely extrinsic states of nature in the second period and "I" assets with linearly independent nominal payoffs. The span of the payoff matrix contains the vector [1, . . . ,1] (i.e., inside money). The set of economies is described in terms of (sunspot-invariant) utility functions. If "S" > "I" > O, there is an open, dense set of economies such that, given a vector of no arbitrage asset prices, the set of equilibrium allocations contains a smooth manifold of dimension "S"-"I". Such a manifold contains at least one nonsunspot equilibrium (and at most a finite number of such equilibria).

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 2 (1992)
Issue (Month): 3 (July)
Pages: 321-40

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Handle: RePEc:spr:joecth:v:2:y:1992:i:3:p:321-40

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Cited by:
  1. Alessandro, CITANNA & SCHMEDDERS, Karl, 2002. "Controlling price volatility through financial innovation," Les Cahiers de Recherche 749, HEC Paris.
  2. Donati, Paola, 2003. "Indeterminacy of rational expectations equilibria in sequential financial markets," Working Paper Series 0262, European Central Bank.
  3. Kajii, Atsushi, 1998. "Sunspots and the Sequential Regularity of Competitive Equilibria," Journal of Economic Theory, Elsevier, vol. 78(1), pages 187-194, January.
  4. Atsushi Kajii, 2006. "Welfare Gains and Losses in Sunspot Equilibria," KIER Working Papers 624, Kyoto University, Institute of Economic Research.
  5. Atsushi Kajii, . "The Sequential Regularity of Competitive Equilibria and Sunspots," Penn CARESS Working Papers e2d9482c0b44fc6a481e83aae, Penn Economics Department.
  6. Pietra, Tito & Siconolfi, Paolo, 1997. "Extrinsic Uncertainty and the Informational Role of Prices," Journal of Economic Theory, Elsevier, vol. 77(1), pages 154-180, November.
  7. M. Salto & T. Pietra, 2013. "Welfare and excess volatility of exchange rates," Economic Theory, Springer, vol. 52(2), pages 501-529, March.

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