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Private Uncertainty and Multiplicity

  • Gaballo, G.

This paper provides the conditions under which small enough private uncertainty on an aggregate endogenous state of the economy can invalidate uniqueness of the equilibrium. The main result is presented in a fully microfounded macroeconomic model where agents learn from arising prices. The findings apply to a broad class of static signal extraction problems where both fundamental correlation and pay-off externalities jointly contribute to a multiplicity of equilibria. The cases where only one of these two determinants is sufficient for a multiplicity are also isolated and discussed.

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File URL: http://www.banque-france.fr/uploads/tx_bdfdocumentstravail/DT-387.pdf
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Paper provided by Banque de France in its series Working papers with number 387.

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Length: 50 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:bfr:banfra:387
Contact details of provider: Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/

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  1. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  2. Aleh Tsyvinski & Arijit Mukherji & Christian Hellwig, 2006. "Self-Fulfilling Currency Crises: The Role of Interest Rates," American Economic Review, American Economic Association, vol. 96(5), pages 1769-1787, December.
  3. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September.
  4. Manuel Amador & Pierre Olivier Weill, 2008. "Learning from Prices: Public Communication and Welfare," 2008 Meeting Papers 390, Society for Economic Dynamics.
  5. Guido Lorenzoni, 2010. "Optimal Monetary Policy with Uncertain Fundamentals and Dispersed Information ," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 305-338.
  6. Roger Guesnerie, 2005. "Assessing Rational Expectations 2: "Eductive" Stability in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072580, June.
  7. Hellwig, Martin F., 1980. "On the aggregation of information in competitive markets," Journal of Economic Theory, Elsevier, vol. 22(3), pages 477-498, June.
  8. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
  9. George-Marios Angeletos & Guido Lorenzoni & Alessandro Pavan, 2010. "Beauty Contests and Irrational Exuberance: A Neoclassical Approach," NBER Working Papers 15883, National Bureau of Economic Research, Inc.
  10. Jayant Vivek Ganguli & Liyan Yang, 2009. "Complementarities, Multiplicity, and Supply Information," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 90-115, 03.
  11. Grossman, Sanford J, 1976. "On the Efficiency of Competitive Stock Markets Where Trades Have Diverse Information," Journal of Finance, American Finance Association, vol. 31(2), pages 573-85, May.
  12. Venky Venkateswaran & Christian Hellwig, 2009. "Setting The Right Prices for the Wrong Reasons," 2009 Meeting Papers 260, Society for Economic Dynamics.
  13. Jess Benhabib & Pengfei Wang & Yi Wen, 2012. "Sentiments and aggregate demand fluctuations," Working Papers 2012-039, Federal Reserve Bank of St. Louis.
  14. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
  15. George-Marios Angeletos & Alessandro Pavan, 2007. "Dynamic Global Games of Regime Change: Learning, Multiplicity and Timing of Attacks," Discussion Papers 1497, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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