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Ergodic Markov equilibrium with incomplete markets and short sales

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  • , H. B.

    (Graduate School of Economics, Getulio Vargas Foundation)

Abstract

This paper studies recursive exchange economies with short sales. Agents maximize discounted expected utility. The asset structure is general and includes real securities, infinite-lived stocks, options, and other derivatives. The main result shows the existence of a competitive equilibrium process that is stationary and has an invariant ergodic measure. Ergodicity is required in finance for time series analysis of structural asset pricing models. This equilibrium property is difficult to obtain when heterogeneous agents can accumulate debt over time. Bounded marginal utility is shown to be a key condition for ergodicity in this setting.

Suggested Citation

  • , H. B., 2013. "Ergodic Markov equilibrium with incomplete markets and short sales," Theoretical Economics, Econometric Society, vol. 8(1), January.
    • Handle: RePEc:the:publsh:799
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    References listed on IDEAS

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    Cited by:

    1. Pierri, Damian Rene & Reffett, Kevin, 2021. "Memory, multiple equilibria and emerging market crises," UC3M Working papers. Economics 32871, Universidad Carlos III de Madrid. Departamento de Economía.
    2. Damián Pierri, 2021. "Useful Results for the Simulation of Non-Optimal Economies with Heterogeneous Agents," Working Papers 156, Universidad de San Andres, Departamento de Economia, revised Aug 2021.
    3. Damián Pierri & Hernán D. Seoane, 2022. "An Ergodic Theory of Sovereign Default," Working Papers 206, Red Nacional de Investigadores en Economía (RedNIE).
    4. García Cabello, Julia, 2017. "The future of branch cash holdings management is here: New Markov chains," European Journal of Operational Research, Elsevier, vol. 259(2), pages 789-799.

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    More about this item

    Keywords

    General equilibrium; incomplete markets; recursive; markov; stationary; ergodic; existence;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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