Price uncertainty and the existence of financial equilibrium
We consider a pure exchange economy, with incomplete financial markets, where agents face an "exogenous uncertainty", on the future state of nature and an "endogenous uncertainty", on the future price in each random state. Namely, every agents forms price anticipations on each spot market, distributed along an idiosyncratic probability law. At a sequential equilibrium, all agents expect the "true" price as a possible outcome and elect optimal strategies at the first period, which clear on all markets at every time period. We show that, provided the endogenous uncertainty is large enough, a sequential equilibrium exists under standard conditions, for all types of financial structures (i.e., with real, nominal and mixed assets). This result suggests that standard existence problems of sequential equilibrium models, following Hart (1975), stem form the single price expectation assumption.
|Date of creation:||Mar 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: + 33 44 07 81 00
Fax: + 33 1 44 07 83 01
Web page: http://centredeconomiesorbonne.univ-paris1.fr/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:mse:cesdoc:11016. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lucie Label)
If references are entirely missing, you can add them using this form.