Monetary and fiscal policy do not determine the stochastic path of prices: in the absence of financial policy, there remains indeterminacy indexed by an arbitrary probability measure over the set of states of the world. With an interest rate policy, and only if the asset market is complete,...

This paper analyzes one-good exchange economies with two infinitely-lived agents and incomplete markets. It is shown that there are no recursive (Markov) equilibria for which borrowing (debt) constraints never bind if the state space of exogenous and endogenous variables is a compact subset of...

Economies with asymmetric information are encompassed by an extension of the model of general competitive equilibrium that does not require an explicit modeling of private information. Sellers have discretion over deliveries on contracts; this is in common with economies with default, incomplete...

This paper analyzes the existence of recursive equilibria in a class of convex growth models with incomplete markets. Households have identical CRRA-preferences, production displays constant returns to scale with respect to physical and human capital, and all markets are competitive. There are...

I propose an arbitrage-based theory of bubbles in economies with general portfolio constraints and differences in beliefs. I find that, in general, bubbles cannot exist unless the constraints restrict the demand for credit sufficiently to induce low interest rates. Speculation due to...

The Lehman Brothers' bankruptcy triggered the failure of the collateralized debt markets, which was a major contributor of the financial crisis in 2008. Such collateralized debt markets have both collateral price channel and counterparty (borrower and lender) channel of contagion. I propose a...

In this paper, I construct a model of an exchange economy in which bankruptcy arises in a manner similar to what we observe. This model is a more realistic representation of some markets in which intertemporal assets are traded. Using standard and natural assumptions, I show that every economy...

This paper studies the macroeconomic effects of consumer credit conditions in an incomplete-market, general equilibrium model where households hold unsecured debt, and firms use labor. I show that consumer finance disturbances can cause business cycle fluctuations through a rich interplay...

This paper documents the macroeconomic effects of changes in downpayment requirements on mortgage loans in a model where investment is undertaken by collateral- constrained agents. I find that a permanent tightening in lending standards substantially lowers aggregate spending in the short run...

The effects of endogenous undiversifiable investment and market structure changes on security pricing are analyzed within the GEI-CAPM (General Equilibrium with Incomplete Markets Capital Asset Pricing Model). Both the mutual fund and security market line theorems are extended conditional to a...