Sunspots and Incomplete Financial Markets: The General Case

David Cass

Economic Theory, 1992, vol. 2, issue 3, 58 pages

Abstract: This paper examines the effects of extrinsic uncertainty or sunspots on competitive equilibrium when financial markets are incomplete. For the canonical two-period, pure-exchange model with bonds (or so-called "nominal assets," yielding overall returns specified in units of account, and including pure inside money), the following result is established: Generically in endowments, if there are "S" sunspot states in the second period, but only 0

Date: 1992
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