SFB 303 Discussion Paper No. B - 86
Author: Wiesmeth, Hans
Title: Endogenous Price Fluctuations
Abstract: A discrete, dynamic general equilibrium model of asset pricing is constructed in which equilibrium prices
are influenced by exogenously given stochastic information signals, and by the endogenously generated price
function prevailing in the respective preceding period. This structural assumption and its consequences for the
informational efficiency of the markets are discussed extensively. The implications for explaining price volatility
are also explored. In addition to that the model allows the investigation of a novel issue: Learning from price
fluctuations. It is shown that sophisticated agents can obtain additional information from stable cycles of
equilibrium price functions. The resulting change in the equilibrium structure might induce a rational
expectations equilibrium, as illustrated by means of an example.
Creation-Date: October 1987
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