Multiple Equilibria in Noisy Rational Expectations Economies

Domotor Palvolgyi, Gyuri Venter

Publikation: KonferencebidragPaperForskningpeer review

Abstrakt

This paper studies equilibrium uniqueness in standard noisy rational expectations economies with asymmetric or differential information a la Grossman and Stiglitz (1980) and Hellwig (1980). We show that the standard linear equilibrium of Grossman and Stiglitz (1980) is the unique equilibrium with a continuous price function. However, we also construct a tractable class of equilibria with discontinuous prices that have very different economic implications, including (i) jumps and crashes, (ii) significant revisions in uninformed belief due to small changes in the market price, (iii) “upward-sloping” demand curves, (iv) higher prices leading to future returns that are higher in expectation (price drift) and (v) more positively skewed. Discontinuous equilibria can be arbitrarily close to being fully-revealing. Finally, discontinuous equilibria with the same construction also exist in Hellwig (1980).
OriginalsprogEngelsk
Publikationsdato2016
Antal sider57
StatusUdgivet - 2016
BegivenhedThe 43rd European Finance Association Annual Meeting (EFA 2016) - BI Norwegian Business School, Oslo, Norge
Varighed: 17 aug. 201620 aug. 2016
Konferencens nummer: 43
http://www.efa2016.org/

Konference

KonferenceThe 43rd European Finance Association Annual Meeting (EFA 2016)
Nummer43
LokationBI Norwegian Business School
LandNorge
ByOslo
Periode17/08/201620/08/2016
Internetadresse

Emneord

  • Asymmetric information
  • Noisy rational expectations
  • Grossman-Stiglitz
  • Equilibrium multiplicity

Citationsformater