A Simple Model of Useless Speculation

Murray Kemp and Hans-Werner Sinn

No 3513, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The paper presents a general equilibrium model of a pure exchange economy with stochastic endowment in which speculation is profitable and stabilizes prices, but is useless from a welfare point of view. Reconciling the Siegel paradox with the theory of incomplete markets we show that banning speculation by closing the forward exchange market may increase social welfare.

Date: 1990-11
Note: ITI IFM
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Citations: View citations in EconPapers (1)

Published as C and S working Paper , December 1995, Japanese Economic Review 51, (2000), pp. 85-95.

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Related works:
Working Paper: A SIMPLE MODEL OF USELESS SPECULATION (1990)
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