We show that quot;spanningquot; does not imply stockholder unanimity if there is trading in the shares of firms. Each basis vector of the space spanned by all firms' output vectors can be treated like a composite commodity. If, in addition to spanning, firms act as price takers with respect to...

A general equilibrium model of an economy is presented where people hold money rather than bonds in order to economize on transaction costs. In any such model it is not optimal for individuals to instantaneously adjust their money holdings when new information arrives. The (endogenous) delayed...

In Part 1 the dynamics of an open market operation were analyzed for the case of logarithmic utility. Though such a utility function is useful for illustrative purposes, the implication that current prices are independent of current and future monetary injections is unsatisfactory. This...

Recent advances in financial theory have created an understanding of the environments in which a real security can be synthesized by a dynamic trading strategy in a risk free asset and other securities. We contend that there is a crucial distinction between a synthetic security and a real...

The consumption based asset pricing model predicts that excess yields are determined in a fairly simple way by the market's degree of relative risk aversion and by the pattern of covariances between percapita consumption growth and asset returns. Estimation and testingis complicated by the fact...

A general equilibrium model of an economy is presented where people hold money rather than bonds in order to economize on transaction costs. In any such model it is not optimal for individuals to instantaneously adjust their money holdings when new information arrives. The (endogenous) delayed...

What are the effects of open market operations? How do these differ from money falling from heaven? We propose a new explanation of how open market operations can change real and nominal interest rates which emphasizes three often mentioned but seldom explicitly articulated features of actual...

Consider an economy subject to two kinds of shocks: (a) an observable shock to the relative demand for final goods which causes dispersion in relative prices, and (b) shocks, unobservable by workers, to the technology for transforming intermediate goods into final goods. A worker in a particular...

In Part 1 the dynamics of an open market operation were analyzed for the case of logarithmic utility. Though such a utility function is useful for illustrative purposes, the implication that current prices are independent of current and future monetary injections is unsatisfactory. This...

We analyze an infinite stage, alternating offer bargaining game in which the buyer knows the gains from trade but the seller does not. Under weak assumptions the game has a unique candidate Perfect Sequential Equilibrium, and it can be solved by backward induction. Equilibrium involves the...