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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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Suggested Citation

  • PIETRA, Tito, 1992. "The structure of the set of sunspot equilibria in economies with incomplete financial markets," LIDAM Reprints CORE 997, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:997
    DOI: 10.1007/BF01211420
    Note: In : Economic Theory, 2, 321-340, 1992
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    Cited by:

    1. M. Salto & T. Pietra, 2013. "Welfare and excess volatility of exchange rates," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 501-529, March.
    2. Atsushi Kajii, 2007. "Welfare Gains And Losses In Sunspot Equilibria," The Japanese Economic Review, Japanese Economic Association, vol. 58(3), pages 329-344, September.
    3. Alessandro, CITANNA & SCHMEDDERS, Karl, 2002. "Controlling price volatility through financial innovation," HEC Research Papers Series 749, HEC Paris.
    4. 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.
    5. Jean-Marc Tallon, 1995. "Théorie de l'équilibre général avec marchés financiers incomplets," Revue Économique, Programme National Persée, vol. 46(5), pages 1207-1239.
    6. Atsushi Kajii, "undated". "The Sequential Regularity of Competitive Equilibria and Sunspots," Penn CARESS Working Papers e2d9482c0b44fc6a481e83aae, Penn Economics Department.
    7. Kajii, Atsushi, 1998. "Sunspots and the Sequential Regularity of Competitive Equilibria," Journal of Economic Theory, Elsevier, vol. 78(1), pages 187-194, January.
    8. Donati, Paola, 2003. "Indeterminacy of rational expectations equilibria in sequential financial markets," Working Paper Series 262, European Central Bank.

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