On the Range of the Risk-Free Interest Rate in Incomplete Markets
AbstractIn a model of a two-period exchange economy under uncertainty, we find both upper and lower bounds for the risk free interest rate when the agentsâ utility function exhibit constant absolute risk aversion. These bounds are independent of the degree of market incompleteness, and so these results show to what extent market incompleteness can explain the risk-free rate puzzle in this class of general equilibrium models with heterogeneous agents. A general method of finding bounds without the assumption of constant absolute risk aversion is also presented.
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Bibliographic InfoPaper provided by UCLA Department of Economics in its series Levine's Bibliography with number 666156000000000383.
Date of creation: 26 Nov 2003
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Other versions of this item:
- Chiaki Hara & Atsushi Kajii, 2003. "On the Range of the Risk-Free Interest Rate in Incomplete Markets," KIER Working Papers 577, Kyoto University, Institute of Economic Research.
- Kajii, A. & Hara, C., 2000. "On the Range of the Risk-Free Interest Rate in Incomplete Markets," Cambridge Working Papers in Economics 0030, Faculty of Economics, University of Cambridge.
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-30 (All new papers)
- NEP-FIN-2003-11-30 (Finance)
- NEP-MON-2003-11-30 (Monetary Economics)
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