General financial economic equilibria

Dilip B. Madan

International Journal of Computational Economics and Econometrics, 2024, vol. 14, issue 4, 389-422

Abstract: Uncertain demands and supplies, given prices, may not be equated to define an equilibrium. New concepts of equilibria are then formulated by modeling markets as an abstract agent absorbing the clearing risk. The new equilibria invoke the theory of acceptable risks to define a two-price equilibrium termed a general financial economic equilibrium (GFEE). The market sets two prices for each commodity, one at which it buys and the other at which it sells. The two prices are determined by targeting the aggregate random net inventory and net revenue exposures to be acceptable risks. The introduction of a two price labour market naturally leads to the concept of both an equilibrium unemployment rate and an equilibrium unemployment insurance rate. It is shown that the unemployment rate rises with the productivity of the economy and can be mitigated by expanding the number of products.

Keywords: acceptable risks; distorted expectations; equilibrium unemployment; equilibrium unemployment insurance. (search for similar items in EconPapers)
Date: 2024
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