In this paper, we introduce the concept of "self-justified equilibria" as a tractable alternative to rational expectations equilibria in stochastic general equilibrium models with heterogeneous agents. A self-justified equilibrium is a temporary equilibrium where, in each period, agents trade in...

Standard macroeconomic theory did not help foresee the crisis, nor has it helped understand it or craft solutions. This columns argues that both the New Classical and New Keynesian complete markets macroeconomic theories not only did not allow the key questions about insolvency and illiquidity...

For several decades, the international community has aspired to integrate the social, economic and environmental dimensions of sustainability. Yet, no country has achieved the patterns of consumption and production that could sustain global prosperity in the coming decades. Thus, with the...

This paper shows that the precautionary motive, combined with asset incompleteness, is a major source of volatility and indeterminacy in financial markets. Price fluctuations originate from agents' efforts to insure themselves through time by borrowing and lending instead of shifting income...

The classic Arrow-Debreu framework requires a very large number of specific securities to reach Pareto optimality. The present paper shows that financial intermediation can play an important role in maintaining a more parsimonious market framework while still obtaining Pareto optimality. In the...

I establish an extension of the classical general equilibrium treatment of uncertainty about exogenous states to price uncertainty. Traders do not know the prices at which trade will occur, but have expectations over possible prices. They trade derivatives, price-contingent securities, to insure...

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...

We consider a Lucas asset-pricing model with heterogeneous agents, exogenous labor income, and a finite number of exogenous shocks. Although agents are infinitely lived, endowments and dividends are time-invariant functions of the exogenous shock alone and are thus restricted to lie in a...

Extrinsic uncertainty is effective at a competitive equilibrium. This is generic if spot markets are inoperative: the only objects of exchange are assets for the contingent delivery of commodities; and the asset market is incomplete. The structure of payoffs of assets may allow for non-trivial...

We investigate an overlapping generations monetary economy in which agents'expectations depend upon backward looking predictors of the future price level.