We show that in economies without liquidity frictions, but with incomplete financial markets, when agents are infinitely lived and uniformly impatient, money can still be essential (that is, have a positive price in equilibrium) if and only if each agent has binding debt constraints at some node...

It is well known that, under uniform impatience, positive net supply assets are free of bubbles for non-arbitrage kernel deflators that yield finite present values of wealth. However, this does not mean that prices cannot be above the series of deflated dividends for the deflators given by the...

This paper studies competitive equilibria of a production economy with aggregate productivity shocks. There is a continuum of consumers who face borrowing constraints and individual labor endowment shocks. The dynamic economy is described in terms of sequences of aggregate distributions. The...

I provide a complete characterization of equilibrium with risk of default in sequential economies under uncertainty. Default induces permanent exclusion from financial markets and not-too-tight solvency constraints prevent debt repudiation at equilibrium. The method of analysis relies on a...

Markets are incomplete when the assets available to the agents do not span the space of future contingencies. Efficiency is then assessed by the weak criterion of "constrained efficiency" (efficiency relative to the set of allocations compatible with the asset structure). That criterion requires...

This paper presents a stochastic dynamic general equilibrium model calibrated for Venezuela that incorporates inter-sectorial relationships. With this model it is possible to assess the impact on the aggregate economic activity generated by productivity shocks or demand shocks to a specific...

When infinite-lived agents trade long-lived assets secured by durable goods, equilibrium exists without any additional debt constraints or uniform impatience conditions on agents’ characteristics. Also, price bubbles are absent when physical endowments are uniformly bounded away from zero.

This article examines agents’ consumption-investment problem in a multi-period pure exchange economy where agents are constrained with the short-sale of state-dependent risky contingent claims. In equilibrum, agents hold options written on aggregate consumption in their optimal portfolios....

Consider a two period financial economy with incomplete markets and with agents having von Neumann-Morgenstern utility functions. It is well known that when the economy’s endowments are collinear, its excess demand function will obey the weak axiom when certain mild restrictions are...

These lecture notes are about financial innovations. We ask why are there some innovation and how is an innovative idea realized. This forces us to consider practical and structural aspects (regulations, taxation, markets) as key drivers of innovations and also basic formal aspects in valuation....