Les Cahiers de Recherche - HEC Paris
CITANNA Alessandro and VILLANACCI Antonio
Incomplete Markets, Allocative Efficiency and the Information Revealed by Prices
Abstract: We compare rational expectations equilibria with different
degrees of information revelation through prices. These equilibria arise in
a two-period exchange economy with finitely many states and signals,
multiple commodities and incomplete financial markets for nominal assets.
We show that there are always equilibria where information is redundant in
the sense of being of no value to the uninformed traders. We give
conditions under which for a generic set of economies, parametrized by
endowments and utilities, there exist open sets of equilibria for which
allocative and informational efficiency are independent, with implications
for monetary policy.
Keywords: Incomplete market; efficiency; information; (follow links to similar papers)
JEL-Codes: D52; D60; D82; E52; (follow links to similar papers)
36 pages, October 11, 1999
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