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Observable Restrictions of General Equilibrium Models with Financial Markets

In: Computational Aspects of General Equilibrium Theory

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  • Felix Kubler

    (University of Pennsylvania)

Abstract

This paper examines whether general equilibrium models of exchange economies with incomplete financial markets impose restrictions on prices of commodities and assets given the stochastic processes of dividends and aggregate endowments. We show that the assumption of time-separable expected utility implies restriction on the cross-section of asset prices as well as on spot commodity prices. However, a relaxation of the assumption of time separability will generally destroy these restriction.

Suggested Citation

  • Felix Kubler, 2008. "Observable Restrictions of General Equilibrium Models with Financial Markets," Lecture Notes in Economics and Mathematical Systems, in: Computational Aspects of General Equilibrium Theory, pages 93-108, Springer.
    • Handle: RePEc:spr:lnechp:978-3-540-76591-2_8
    DOI: 10.1007/978-3-540-76591-2_8
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    References listed on IDEAS

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    1. Constantinides, George M & Duffie, Darrell, 1996. "Asset Pricing with Heterogeneous Consumers," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 219-240, April.
    2. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-973, July.
    3. Chiappori, Pierre-Andre & Rochet, Jean-Charles, 1987. "Revealed Preferences and Differentiable Demand: Notes and Comments," Econometrica, Econometric Society, vol. 55(3), pages 687-691, May.
    4. Lars Peter Hansen & James J. Heckman, 1996. "The Empirical Foundations of Calibration," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 87-104, Winter.
    5. Mas-Colell, Andreu, 1977. "On the equilibrium price set of an exchange economy," Journal of Mathematical Economics, Elsevier, vol. 4(2), pages 117-126, August.
    6. Kubler, F. & Chiappori, P. -A. & Ekeland, I. & Polemarchakis, H. M., 2002. "The Identification of Preferences from Equilibrium Prices under Uncertainty," Journal of Economic Theory, Elsevier, vol. 102(2), pages 403-420, February.
    7. Donald J. Brown & Rosa L. Matzkin, 2008. "Testable Restrictions on the Equilibrium Manifold," Lecture Notes in Economics and Mathematical Systems, in: Computational Aspects of General Equilibrium Theory, pages 11-25, Springer.
    8. Pierre-André Chiappori & Ivar Ekeland & Felix Kübler & Heracles M. Polemarchakis, 1999. "The Identification of Preferences from Equilibrium Prices," Working Papers hal-00598229, HAL.
    9. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    10. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March.
    11. Kreps, David M & Porteus, Evan L, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Econometrica, Econometric Society, vol. 46(1), pages 185-200, January.
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    Citations

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    Cited by:

    1. Andrés Carvajal & Alvaro Riascos, 2005. "The Identification Of Preferences From Market Data Under Uncertainty," Documentos CEDE 3599, Universidad de los Andes, Facultad de Economía, CEDE.
    2. Andrés Carvajal, 2003. "Testable Restrictions og General Equilibrium Theory in Exchange Economies with Externalities," Borradores de Economia 3556, Banco de la Republica.
    3. Carvajal, Andres, 2004. "Testable restrictions on the equilibrium manifold under random preferences," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 121-143, February.
    4. Carvajal, Andres & Quah, John K.-H., 2009. "A Nonparametric Analysis of the Cournot Model," The Warwick Economics Research Paper Series (TWERPS) 922, University of Warwick, Department of Economics.
    5. Cherchye, Laurens & Demuynck, Thomas & De Rock, Bram, 2011. "Testable implications of general equilibrium models: An integer programming approach," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 564-575.
    6. Schwarz, Christian & Stroinski, Uwe, 2009. "Is there a Walrasian Equilibrium in Exchange Markets with Endowment Effect?," Ruhr Economic Papers 82, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    7. Leeat Yariv & David Laibson, 2004. "Safety in Markets: An Impossibility Theorem for Dutch Books," 2004 Meeting Papers 867, Society for Economic Dynamics.
    8. repec:zbw:rwirep:0082 is not listed on IDEAS
    9. Felix Kubler & Karl Schmedders, 2010. "Non-parametric counterfactual analysis in dynamic general equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 181-200, October.
    10. Felix Kubler, 2008. "Is Intertemporal Choice Theory Testable?," Lecture Notes in Economics and Mathematical Systems, in: Computational Aspects of General Equilibrium Theory, pages 79-91, Springer.
    11. Chiappori, P. -A. & Ekeland, I. & Kubler, F. & Polemarchakis, H. M., 2004. "Testable implications of general equilibrium theory: a differentiable approach," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 105-119, February.
    12. Christian Schwarz & Uwe Stroinski, 2009. "Is there a Walrasian Equilibrium in Exchange Markets with Endowment Effect?," Ruhr Economic Papers 0082, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    13. Leeat Yariv, 2004. "Safety in Markets: An Impossibility Theorem for Dutch Books," Theory workshop papers 658612000000000072, UCLA Department of Economics.

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