Sequential trading without perfect foresight: the role of default and collateral∗
نویسندگان
چکیده
Temporary equilibrium models replaced the usual assumption that agents can perfectly foresee future prices by weaker informational requirements allowing for inaccurate price forecasts. However, temporary equilibrium models were criticized for requiring some coordination of agents’ expectations (i.e., overlapping expectations) and for not providing a mechanism that prevents the economy from collapsing when agents’ expectations are not fulfilled. Our paper addresses these two shortcomings. When loans are secured by collateral, we can dispense with restrictions on agents’ expectations to get equilibrium at the initial date. Moreover, allowing for default, allows us to restore equilibrium at future dates in the event of expectation errors.
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