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The Structure of the Set of Sunspot Equilibria in Economies with Incomplete Financial Markets


  • Pietra, Tito


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).

Suggested Citation

  • Pietra, Tito, 1992. "The Structure of the Set of Sunspot Equilibria in Economies with Incomplete Financial Markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(3), pages 321-340, July.
  • Handle: RePEc:spr:joecth:v:2:y:1992:i:3:p:321-40

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    References listed on IDEAS

    1. Jun Iritani, 1981. "On Uniqueness of General Equilibrium," Review of Economic Studies, Oxford University Press, vol. 48(1), pages 167-171.
    2. Xavier Vives, 1987. "Small Income Effects: A Marshallian Theory of Consumer Surplus and Downward Sloping Demand," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 87-103.
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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. 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.
    3. Jean-Marc Tallon, 1995. "Théorie de l'équilibre général avec marchés financiers incomplets," Revue Économique, Programme National Persée, vol. 46(5), pages 1207-1239.
    4. Atsushi Kajii, "undated". "The Sequential Regularity of Competitive Equilibria and Sunspots," Penn CARESS Working Papers e2d9482c0b44fc6a481e83aae, Penn Economics Department.
    5. 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.
    6. Kajii, Atsushi, 1998. "Sunspots and the Sequential Regularity of Competitive Equilibria," Journal of Economic Theory, Elsevier, vol. 78(1), pages 187-194, January.
    7. Atsushi Kajii, 2007. "Welfare Gains And Losses In Sunspot Equilibria," The Japanese Economic Review, Japanese Economic Association, vol. 58(3), pages 329-344.
    8. Donati, Paola, 2003. "Indeterminacy of rational expectations equilibria in sequential financial markets," Working Paper Series 262, European Central Bank.

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