Efficiency, Quality of Forecasts and Radner Equilibria

Shurojit Chatterji and Atsushi Kajii
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Shurojit Chatterji: Singapore Management University

No 24, Working Papers on Central Bank Communication from University of Tokyo, Graduate School of Economics

Abstract: We study a simple two period economy with no uncertainty and complete markets where agents trade based on forecasts about the second period spot price. We propose as our solution concept a set of forecasts with the following properties: there exist (heterogenous) forecasts contained in this set that lead to efficient allocations, the set contains only those forecasts that correspond to some efficient equilibrium, and finally that the forecasts assign positive probability to the actual market clearing spot price. We call such a set of prices an efficient equilibrium with ambiguity, and interpret it as a generalization of Radner equilibrium that delivers efficient allocations under forecasts that possess a self-fulfilling property that is weaker than perfect foresight.

JEL-codes: D51 D53 D61 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2020-06
New Economics Papers: this item is included in nep-sea
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