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The dynamics of partially-revealing rational expectations equilibria

Jayant Ganguli and Scott Condie
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Scott Condie: Brigham Young University

No 1122, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: This paper investigates the qualitative properties of a dynamic rational expectations equilibrium model where incomplete private information revelation is possible. The information revelation properties of prices are endogenous to the model. Periods of complete and incomplete information revelation are examined and it is shown that the private information of ambiguity averse investors tends to be revealed following periods of poor market performance. It is further demonstrated that the differences in long-run market prices that arise from partially- and fully-revealing equilibria are significant. These results shed some light on the market selection hypothesis under asymmetric information.

Date: 2009
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