Constraints and non-existence of rational expectations equilibria

Jose Marin () and Jacques Olivier

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: In this article we show that in the presence of trading constraints, such as short sale constraints, the standard definition of a Rational Expectations Equilibrium allows for equilibrium prices that reveal information unknown to any active trader in the market. We propose a new definition of the Rational Expectations Equilibrium that incorporates a stronger measurability condition than measurability with respect to the join of the information sets of the agents and give an example of non-existence of equilibrium. The example is robust to perturbations on the data of the economy and the introduction of new assets.

Keywords: Rational expectations; short sale constraints; existence of equilibrium (search for similar items in EconPapers)
JEL-codes: D40 D46 D50 D82 G12 (search for similar items in EconPapers)
Date: 1997-07
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:225

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