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A remark on the supposed equivalence between complete markets and perfect foresight hypothesis

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  • Fratini, Saverio M.
  • Levrero, Enrico Sergio

Abstract

We consider a sequential equilibrium model over two periods, during the first of which agents have perfect information and their expectations are formed as if there were complete future markets. We show that, in the second period, equilibrium prices may well be different from those expected, without any unexpected change having occurred. This result highlights a lack of correspondence between the perfect foresight hypothesis and that of complete markets.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15988.

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Date of creation: Jun 2009
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Handle: RePEc:pra:mprapa:15988

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Keywords: Arrow-Debreu equilibrium; Complete markets; Sequential equilibrium; Perfect foresight; Indeterminacy;

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  1. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  2. Mandler Michael, 1995. "Sequential Indeterminacy in Production Economies," Journal of Economic Theory, Elsevier, vol. 66(2), pages 406-436, August.
  3. Saverio M. Fratini, 2008. "Economic Generality Versus Mathematical Genericity: Activity-Level Indeterminacy And The Index Theorem In Constant Returns Production Economies," Metroeconomica, Wiley Blackwell, vol. 59(2), pages 266-275, 05.
  4. Green, Jerry R, 1973. "Temporary General Equilibrium in a Sequential Trading Model with Spot and Futures Transactions," Econometrica, Econometric Society, vol. 41(6), pages 1103-23, November.
  5. Hicks, J. R., 1975. "Value and Capital: An Inquiry into some Fundamental Principles of Economic Theory," OUP Catalogue, Oxford University Press, edition 2, number 9780198282693, September.
  6. Grandmont, Jean-Michel, 1993. "Temporary general equilibrium theory," Handbook of Mathematical Economics, in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 19, pages 879-922 Elsevier.
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