General Equilibrium with Endogenously Incomplete Financial Markets

Alberto Bisin

    Research output: Contribution to journalArticle

    Abstract

    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 LiteraturClassification Numbers: D52, G20.

    Original languageEnglish (US)
    Pages (from-to)19-45
    Number of pages27
    JournalJournal of Economic Theory
    Volume82
    Issue number1
    DOIs
    StatePublished - Sep 1998

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    General equilibrium
    Intermediaries
    Incomplete financial markets
    Price-taking
    Indeterminacy
    Market economy
    Indexation
    Economics
    Charge
    Financial intermediation
    Financial intermediaries
    Financial markets
    Bid/ask spread
    Security issues
    Monetary neutrality
    Securities market
    Competitive equilibrium
    Incomplete markets

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    General Equilibrium with Endogenously Incomplete Financial Markets. / Bisin, Alberto.

    In: Journal of Economic Theory, Vol. 82, No. 1, 09.1998, p. 19-45.

    Research output: Contribution to journalArticle

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