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Stationary Equilibria with Incomplete Markets and Overlapping Generations

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  • Cass, David
  • Green, Richard C
  • Spear, Stephen E

Abstract

Recent work on general equilibrium models with incomplete financial markets has demonstrated that when assets pay off in units of account, equilibrium prices and allocations are indeterminate. The equilibria in such models are also generically constrained suboptimal. A central planner can typically reallocate assets in such a way as to Pareto dominate the competitive equilibrium. In this paper, the authors consider an overlapping generations model with incomplete markets in which one asset is fiat money. They show that when outside money has value in equilibrium, the stationary equilibrium prices and allocations are both locally isolated and constrained optimal. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Cass, David & Green, Richard C & Spear, Stephen E, 1992. "Stationary Equilibria with Incomplete Markets and Overlapping Generations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(3), pages 495-512, August.
    • Handle: RePEc:ier:iecrev:v:33:y:1992:i:3:p:495-512
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    Citations

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    Cited by:

    1. Portier, Franck & Tallon, Jean-Marc, 1995. "On the non-neutrality and optimality of monetary policy when financial markets are incomplete: a macroeconomic perspective," Ricerche Economiche, Elsevier, vol. 49(1), pages 33-49, March.
    2. P. Siconolfi & A. Citanna, 2007. "Recursive equilibrium in stochastic OLG economies," 2007 Meeting Papers 777, Society for Economic Dynamics.
    3. Takeoka, Norio, 2006. "Stationary Markov equilibria on a non-compact self-justified set," Journal of Mathematical Economics, Elsevier, vol. 42(3), pages 269-290, June.
    4. Jean-Marc Tallon, 1995. "Théorie de l'équilibre général avec marchés financiers incomplets," Revue Économique, Programme National Persée, vol. 46(5), pages 1207-1239.
    5. Sara Eugeni, 2019. "Exchange rate volatility and cooperation in an incomplete markets' economy," Department of Economics Working Papers 2019_02, Durham University, Department of Economics.
    6. Chattopadhyay, Subir & Gottardi, Piero, 1999. "Stochastic OLG Models, Market Structure, and Optimality," Journal of Economic Theory, Elsevier, vol. 89(1), pages 21-67, November.
    7. Antonio Jiménez-Martínez & Subir Chattopadhyay, 2000. "The Unit Root Property When Markets Are Sequentially Incomplete," Working Papers. Serie AD 2000-32, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    8. Eisei Ohtaki & Hiroyuki Ozaki, 2015. "Monetary equilibria and Knightian uncertainty," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(3), pages 435-459, August.
    9. Maldonado, Wilfredo L. & Orrillo, Jaime, 2006. "Two-Sided Altruism in an OLG Model with Incomplete Markets and Default," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 26(2), November.
    10. Florenzano, Monique & Gourdel, Pascal & Pascoa, Mario Rui, 2001. "Overlapping generations models with incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 36(3), pages 201-218, December.
    11. Subir Chattopadhyay, 2001. "Long-Lived Assets, Incomplete Markets, And Optimality," Working Papers. Serie AD 2001-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    12. Chattopadhyay, Subir & Jimnez-Martnez, Antonio, 2009. "Dividend paying assets, the unit root property, and suboptimality," Journal of Mathematical Economics, Elsevier, vol. 45(3-4), pages 223-232, March.
    13. Citanna, Alessandro & Siconolfi, Paolo, 2007. "Short-memory equilibrium in stochastic overlapping generations economies," Journal of Economic Theory, Elsevier, vol. 134(1), pages 448-469, May.
    14. Alessandro Citanna & Paolo Siconolfi, 2008. "On the nonexistence of recursive equilibrium in stochastic OLG economies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(3), pages 417-437, December.

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