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Equilibrium Indeterminacy In A Model Of Constrained Financial Markets

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  • Luciana C. Fiorini

Abstract

I present a general equilibrium model with incomplete markets in which assets pay in units of a numéraire good. In this economy, agents are constrained to negotiate the same amount of assets in different states of the world. Different from the standard result of economies with real assets, equilibrium indeterminacy can arise, depending on the structure of the financial markets. Equilibrium fails to be unique when it is not possible to transfer wealth between states in which consumers trade a pair of assets that face the same restriction.

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  • Luciana C. Fiorini, 2016. "Equilibrium Indeterminacy In A Model Of Constrained Financial Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(3), pages 857-880, August.
    • Handle: RePEc:wly:iecrev:v:57:y:2016:i:3:p:857-880
    DOI: 10.1111/iere.12178
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