Endogenous credit constraints: the role of informational non-uniqueness

We point out that the equilibrium deinition applied by Miao and Wang [8] in their model of stock price bubbles involves an implicit assumption about the for-mulation of an endogenous credit constraint. By dropping this assumption, one can construct ininitely many additional equilibria for the Miao-Wang economy, all of which exhibit stock price bubbles. The underlying reason for this result is informational non-uniqueness, a phenomenon known from the literature on dynamic games. Neither the original equilibria discussed by Miao and Wang [8] nor the additional ones which exist due to informational non-uniqueness are Markov-perfect. For this reason we propose a recursive equilibrium deinition for the Miao-Wang economy and show how it can be used to construct Markov-perfect equilibria with stock price bubbles.