Indeterminateness of equilibria and macroeconomics

The paper reviews results on indeterminateness of equilibria in two extensions of the standard (Arrow-Debreu) model of general equilibrium. These extensions, motivated by macroeconomic interpretations, concern money and price rigidities. In a natural extension to money (held for transaction purposes), if monetary policy fixes either nominal interest rates or moneysupply (but not both), the variability of inflation rates is unrestricted, at equilibrium. In the absence of initial nominal asset positions, the indeterminateness of inflation rates is harmless, in the complete-markets framework of Arrow-Debreu. When some relative prices are predetermined, there exists generically a continuum of real equilibria, indexed bythe overall degree of rationing. In a model combining money and nominal price rigidities, the fixed nominal prices limit the indeterminateness of inflation rates, but the real indeterminateness subsits. When one introduces in addition a tatonnement process of nominal price formation, incorporatingsome downward nominal rigidities, both the nominal and the real indeterminateness may be eliminated (through the initial conditions), in the complete-markets framework. It is argued that macroeconomic interpretations call for an incomplete-markets framework, hence for expectations, another source of indeterminateness. A concludingsection offers some heuristic remarks on the open problems associated with market incompleteness.