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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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File URL: http://dx.doi.org/10.1007/BF01211420
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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -997.

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Handle: RePEc:cor:louvrp:-997

Note: In : Economic Theory, 2, 321-340, 1992
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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. Kajii, Atsushi, 1998. "Sunspots and the Sequential Regularity of Competitive Equilibria," Journal of Economic Theory, Elsevier, Elsevier, vol. 78(1), pages 187-194, January.
  3. Atsushi Kajii, . ""The Sequential Regularity of Competitive Equilibria and Sunspots''," CARESS Working Papres, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences 95-11, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  4. M. Salto & T. Pietra, 2011. "Welfare and excess volatility of exchange rates," Working Papers wp758, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Donati, Paola & Momi, Takeshi, 2003. "Indeterminacy of rational expectations equilibria in sequential financial markets," Journal of Mathematical Economics, Elsevier, vol. 39(7), pages 743-762, September.
  6. Pietra, Tito & Siconolfi, Paolo, 1997. "Extrinsic Uncertainty and the Informational Role of Prices," Journal of Economic Theory, Elsevier, Elsevier, vol. 77(1), pages 154-180, November.
  7. Atsushi Kajii, 2007. "Welfare Gains And Losses In Sunspot Equilibria," The Japanese Economic Review, Japanese Economic Association, Japanese Economic Association, vol. 58(3), pages 329-344.

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