Overlapping generations models with or without production or a portfolio demand for money display a fundamental indeterminacy. Expectations matter; and they are not, in the short run, constrained by the hypotheses of agent optimization, rational expectations, and market clearing. No short run...

In the classical general equilibrium model, agents keep all their promises, every good is traded, and competition prevents any agent from earning superior returns on investments in financial markets. In this paper I introduce the age-old problem of broken promises into the general equilibrium...

I survey the major results in the theory of general equilibrium with incomplete asset markets. I also introduce the papers in this volume and offer a few suggestions for further work.

Our purpose in this paper is to unify international trade and finance in a single general equilibrium model. Our model is rich enough to include multiple commodities (including traded and nontraded goods), heterogeneous consumers in each country, multiple time periods, multiple credit markets,...

We build a simple model of leveraged asset purchases with margin calls. Investment funds use what is perhaps the most basic financial strategy, called "value investing," i.e. systematically attempting to buy underpriced assets. When funds do not borrow, the price fluctuations of the asset are...

The present crisis is the bottom of a recurring problem that I call the leverage cycle, in which leverage gradually rises too high then suddenly falls much too low. The government must manage the leverage cycle in normal times by monitoring and regulating leverage to keep it from getting too...

Decision theory and game theory are extended to allow for information processing errors. This extended theory is then used to reexamine market speculation and consensus, both when all actions (opinions) are common knowledge and when they may not be. Five axioms of information processing are...

Consider a group of people who are asked to offer their opinions on some issue. "Business confidence" surveys are an example: groups of businessmen are often asked for their predictions of economic indicators such as growth or inflation rates. Each member of the group makes a prediction based on...

We show that a firm can increase expected profits by undertaking the additional expense of paying unemployment compensation to the workers it lays off, if they are risk averse. When this argument is applied to the implicit contract models it makes the involuntary unemployment derived there...