We study the macroeconomic effects of systemic bank runs in a neoclassical model with a microfounded banking system. In every period, the banks provide insurance against some idiosyncratic liquidity shocks, but the possibility of sunspot-driven bank runs distorts the equilibrium allocation. In a...

Individuals exchange contracts for the delivery of commodities in competitive markets and, simultaneously, act strategically; actions affect utilities across individuals directly or through the payoffs of contracts. This encompasses economies with asymmetric information, Nash-Walras equilibria...

The present note highlights the seminal contributions of Diamond, Drèze and Radner towards the integration of financial markets into general equilibrium modeling.

We reconsider the well-known result of Arrow (1953) that the set of equilibria of an economy with complete markets coincides with the one of an economy with sequentially complete markets. We show by means of two examples that this result is problematic when there exist multiple equilibrium...

In an incomplete asset market, firms compute the value of production plans by approximating them with the payoffs of portfolios of marketed assets; equivalently, by projecting their payoffs on the span of the payoffs of marketed assets; equivalently, they apply the capital asset pricing model...

We discuss the issue, raised by Mas-Colell (1991) whether the local uniqueness (relative to the L∞ topology) may be a generic property of equilibria in incomplete markets economies with a continuum of states.

In an open economy, outside money in positive supply does not eliminate the real indeterminacy which arises under uncertainty and incomplete asset markets. If money supply is subject to shocks or is not perfectly credible in all countries, the level of a fixed exchange rate matters. Analogous...

The competitive equilibrium correspondence, which associates equilibrium prices of commodities and assets with allocations of endowments, identifies the preferences and beliefs of individuals under uncertainty; this is the case even if the asset market is incomplete.

At arbitrary prices of commodities and assets, fix-price equilibria exist under weak assumptions: endowments need not satisfy an interiority condition, utility functions need only satisfy very weak monotonicity requirement, and the asset return matrix allows for redundant assets. Prices of...