SFB 303 Discussion Paper No. A - 384
Author: Magill, Michael, and Martine Quinzii
Title: Infinite Horizon Incomplete Markets
Abstract: The general equilibrium model with incomplete markets is extended to
the case of an open-ended future. Such a model provides a natural setting
for analyzing many problems of macroeconomics. The paper provides an initial
step for such an analysis by establishing conditions under which an
equilibrium exists. With short-lived numeraire assets an equilibrium always
exists; with long-lived assets an equilibrium exists for a dense set of
payoff structures. The prices of infinite-lived securities in zero net
supply are shown to permit speculative bubbles which affect (do not affect)
the equilibrium allocation if markets are incomplete (complete). The prices
of securities in positive net supply do not have bubbles.
Creation-Date: August 1992
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