9th Symposium on Finance, Banking, and Insurance
Universität Karlsruhe (TH), Germany, December 11 - 13, 2002

Abstract

Sunspots and Incomplete Markets with Real Assets

Nadjette Laguecir

Universität Strasbourg

This paper deals with the effct of extrinsic uncertainty or sunspots on competitive equilibrium when markets are incomplete. For the two periods pure exchange economy with real assets [yielding returns specified in units of goods and sunspot independent], the generic existence of sunspot equilibria is established. In fact, we actually identify an asset structure such that, generically to preferences, the real asset economy has a regular sunspot equilibrium. The proof consists in using an auxiliary economy with nominal assets and variable asset prices to detect sunspot equilibria in an economy with real assets. This work generalizes Gottardi and Kajii result (1995) to many assets and many states.