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The Existence of Equilibrium in a Financial Market with Transaction Costs

Author

Listed:
  • Xing Jin

    (Institute of Systems, Academia Sinica)

  • Frank Milne

    () (Queen's University)

Abstract

This paper proves the existence of a general equilibrium in a financial model with transaction costs. A general equilibrium is shown to exist in a model with convex trading technology, in which the agents include consumers, production firms, brokers or dealers. When the trading technology is non-convex, an individual approximate equilibrium, introduced by Heller and Starr (1976) is proved in the above model. And, moreover, under a further assumption of finite p-convexity on the commodity excess demand correspondence, a general equilibrium for a non-convex exchange economy is obtained for an economy with consumers, brokers or dealers.

Suggested Citation

  • Xing Jin & Frank Milne, 1999. "The Existence of Equilibrium in a Financial Market with Transaction Costs," Working Papers 1084, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:1084
    as

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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1084.pdf
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    References listed on IDEAS

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    1. Michael C. Lovell, 1963. "Seasonal Adjustment of Economic Time Series and Multiple Regression," Cowles Foundation Discussion Papers 151, Cowles Foundation for Research in Economics, Yale University.
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    Cited by:

    1. Frank Milne & Edwin Neave, 2003. "A General Equilibrium Financial Asset Economy with Transaction Costs and Trading Constraints," Working Papers 1082, Queen's University, Department of Economics.
    2. Frank Milne & Xing Jin, 2006. "Taxation and Transaction Costs in a General Equilibrium Asset Economy," Working Papers 1111, Queen's University, Department of Economics.
    3. Martins-da-Rocha, Victor Filipe & Vailakis, Yiannis, 2008. "Endogenous Transaction Costs," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 680, FGV/EPGE - Escola Brasileira de Economia e Finan├žas, Getulio Vargas Foundation (Brazil).
    4. Frank Milne, 2008. "Credit Crises, Risk Management Systems and Liquidity Modelling," Working Papers 1, John Deutsch Institute for the Study of Economic Policy.
    5. V. Martins-da-Rocha & Yiannis Vailakis, 2010. "Financial markets with endogenous transaction costs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 65-97, October.

    More about this item

    Keywords

    arbitrage; general equilibrium; transaction cost; individual approximate equilibrium; finite p-convexity;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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