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General equilibrium and endogenous creation of asset markets

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  • Faias, Marta

Abstract

This paper studies a class of general equilibrium economies in which asset markets arise as choice of /nancial intermediaries. The economy is modeled as a two stage game as in Bisin[8]. In the /rst stage intermediaries set up the /nancial structure according to the expectation that they have for the sec- ond stage outcome. In the second stage, consumers behave as price takers in the commodity market and in the previously created assets market. We consider that intermediaries form their expectations using continuous random selections from the second stage equilibrium correspondence (di.erently from Bisin [8] where an endogenous beliefs expectation was used). We establish the existence of equilibria in mixed strategies and moreover, we obtain an approximate equilibria in pure strategies by modeling explicitly the incomplete information that each intermediary has about others intermediaries /xed cost functions.

Suggested Citation

  • Faias, Marta, 2004. "General equilibrium and endogenous creation of asset markets," FEUNL Working Paper Series wp454, Universidade Nova de Lisboa, Faculdade de Economia.
  • Handle: RePEc:unl:unlfep:wp454
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    References listed on IDEAS

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    More about this item

    Keywords

    Endogenous asset creation; asset design game; strategic intermediaries; continuous random selections; puri/cation of equilibria;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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