General Equilibrium with Endogenously Incomplete Financial Markets
نویسندگان
چکیده
The present paper studies a class of general equilibrium economies with imperfectly competitive financial intermediaries and price-taking consumers. Intermediaries optimally choose the securities they issue and the bid-ask spread they charge. Financial intermediation is costly, and hence markets are endogenously incomplete. An appropriate equilibrium concept is developed, and existence is proved. Competitive equilibria for this class of economies display full indexation of securities payoffs and monetary neutrality even if intermediaries are restricted to issue "nominal" securities and financial markets turn out to be incomplete. This is in sharp contrast with the' indeterminacy and non-neutrality results established in the literature for incomplete markets economies with exogenously given "nominal" securities. Journal of Economic Literature Classification Numbers: D52, G20. © 1998 Acadcn'fic Press
منابع مشابه
Production and financial decisions under uncertainty
We propose a model of an incomplete markets economy with production, in which the firm acts as financial innovator by issuing claims against its stock. The firm’s objective is to maximize its adjusted value, which is the sum of the market value and the shareholders’ surplus from their trades in the stock markets. If a firm maximizes its adjusted value, then its financial policy is relevant (i.e...
متن کاملCompetitive Equilibria with Production and Limited Commitment∗
This paper studies a production economy with aggregate uncertainty where consumers have limited commitment on their financial liabilities. Markets are endogenously incomplete due to the fact that the borrowing constraints are determined endogenously. We first show that, if competitive financial intermediaries are allowed to set the borrowing limits, then the ones that prevent default will be an...
متن کاملBank lending and firm dynamics in general equilibrium
This paper investigates the impact of a change in aggregate credit supply on firm dynamics in an economy with financial frictions. We model a lifetime lending relationship between banks and firms in a general equilibrium framework with households making endogenous occupational decision. Financial markets are endogenously incomplete due to asymmetric information, and financial constraints emerge...
متن کاملAn Introduction to General Equilibrium with Incomplete Asset Markets*
The theory of general equilibrium with incomplete asset markets (GEI) studies the pricing of securities and commodities, and the interactions of perfectly competitive asset markets and commodity markets in determining consumption and investment. Since financial economics is fundamentally concerned with the pricing of securities, and since macroeconomics is fundamentally concerned with the real ...
متن کاملComputing General Economic Equilibrium with Incomplete Markets, Collateral and Default Penalties
General economic equilibrium with incomplete markets and default represents the most general tool in competitive economic theory, and has led to fundamental insights into the behavior of real and financial markets. However, the current approach to the computation of general equilibrium with default, based on homotopy methods, does not scale well to complex economic models. In this article, the ...
متن کامل