On endogenous formation of price expectations

Cuong Le Van (), Paulina Navrouzoglou and Yiannis Vailakis ()
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Cuong Le Van: IPAG Business School, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, TIMAS - Institute of Mathematics and Applied Science, Academy of Policy and Development - Partenaires INRAE
Paulina Navrouzoglou: University of Glasgow Adam Smith Business School
Yiannis Vailakis: University of Glasgow Adam Smith Business School

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We study a two-period exchange economy with complete financial markets and endogenous borrowing constraints. Contrary to perfect foresight paradigm, we assume that agents are heterogeneous in their ability to forecast future prices. We introduce a new equilibrium concept, called informationally constrained equilibrium, where the formation of price expectations is endogenous and reflects the revelation of information from observing bounds on liabilities designed to ensure solvency at any contingency. We prove that, under standard assumptions, an equilibrium always exists and we characterize the degree of information revealed by the endogenous debt limits.

Keywords: Perfect foresight; Price expectations; Endogenous borrowing constraints (search for similar items in EconPapers)
Date: 2019-05
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Published in Games and Economic Behavior, 2019, 115, pp.436-458. ⟨10.1016/j.geb.2019.03.004⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-03261223

DOI: 10.1016/j.geb.2019.03.004

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