Constraints and Non-Existence of Rational Expectations Equilibria

Posted: 21 Jan 1998

See all articles by Jose M. Marin

Jose M. Marin

Universidad Carlos III de Madrid

Jacques Olivier

HEC Paris - Finance Department; Centre for Economic Policy Research (CEPR)

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.

JEL Classification: D40, D46, D50, D82, G12

Suggested Citation

Marin, Jose M. and Olivier, Jacques, Constraints and Non-Existence of Rational Expectations Equilibria. Available at SSRN: https://ssrn.com/abstract=48480

Jose M. Marin (Contact Author)

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

HOME PAGE: http://www.josemarin.com

Jacques Olivier

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
+33 1 3967 7297 (Phone)
+33 1 3967 7085 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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