Asset Trading Volume with Dynamically Complete Markets and Heterogeneous Agents

Judd, Kenneth L.; Kübler, Felix; Schmedders, Karl

doi:10.1111/1540-6261.00602

Cited by 54 publications

(52 citation statements)

References 13 publications

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“…Substituting this expression into the condition obtained above for the intervention to be improving, (18), and rearranging terms we get:…”

Section: Pareto-improving Interventionmentioning

confidence: 99%

“…Substituting these expressions into (18) we find that, in the case of logarithmic preferences, the intervention considered is welfare improving if, and only if, Figure 1 shows, in the space h, β, the region of values of these parameters for which competitive equilibria are constrained inefficient as well as the region where equilibria are Pareto efficient. We see that the region where constrained inefficiency holds is quite large, while the region where full Pareto efficiency cannot be attained but still the intervention considered is not welfare improving is very small.…”

Section: Logarithmic Preferencesmentioning

confidence: 99%

“…Judd et al (2003) show how to use this approach to compute equilibria in Lucas-style models with complete markets (and without collateral constraints). Chien and Lustig (2010) (see also Chien et al (2011)) consider a Markov equilibrium notion that features individual multipliers -interpretable as the inverse of our consumption weights -as the endogenous state variable in a model analogous to ours, though for a slightly different economy with a continuum of agents.…”

Section: Existence Of Markov Equilibriamentioning

confidence: 99%

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Dynamic Competitive Economies with Complete Markets and Collateral Constraints

Gottardi

Kübler

2015

Review of Economic Studies

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In this article we examine the competitive equilibria of a dynamic stochastic economy with complete markets and collateral constraints. We show that, provided the sets of asset pay-offs and of collateral levels are sufficiently rich, the equilibrium allocations with sequential trades and collateral constraints are equivalent to those obtained in Arrow-Debreu markets subject to a series of limited pledgeability constraints. We provide both necessary and sufficient conditions for equilibria to be Pareto efficient and show that when collateral is scarce equilibria are not only Pareto inefficient but also often constrained inefficient, in the sense that imposing tighter borrowing restrictions can make everybody in the economy better off. We derive sufficient conditions for the existence of Markov equilibria and, for the case of two agents, for the existence of equilibria that have finite support. These equilibria can be computed with arbitrary accuracy and the model is very tractable. Abstract In this paper we examine the competitive equilibria of a dynamic stochastic economy with complete markets and collateral constraints. We show that, provided the sets of asset payoffs and of collateral levels are sufficiently rich, the equilibrium allocations with sequential trades and collateral constraints are equivalent to those obtained in Arrow-Debreu markets subject to a series of limited pledgeability constraints.We provide both necessary and sufficient conditions for equilibria to be Pareto efficient and show that when collateral is scarce equilibria are not only Pareto inefficient but also often constrained inefficient, in the sense that imposing tighter borrowing restrictions can make everybody in the economy better off.We derive sufficient conditions for the existence of Markov equilibria and, for the case of two agents, for the existence of equilibria that have finite support. These equilibria can be computed with arbitrary accuracy and the model is very tractable. * We thank seminar participants at various universities and conferences and in particular Arpad Abraham,

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“…Substituting this expression into the condition obtained above for the intervention to be improving, (18), and rearranging terms we get:…”

Section: Pareto-improving Interventionmentioning

confidence: 99%

Section: Logarithmic Preferencesmentioning

confidence: 99%

Section: Existence Of Markov Equilibriamentioning

confidence: 99%

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Dynamic Competitive Economies with Complete Markets and Collateral Constraints

Gottardi

Kübler

2015

Review of Economic Studies

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“…For the purpose of this paper we do not need a formal definition of financial markets equilibrium. We thus omit a statement of the formal definition and refer to Judd et al (2003) and many other papers.…”

Section: The Asset Market Economymentioning

confidence: 99%

“…Under our assumption of dynamically complete markets we can use a slightly generalized version of the three-step algorithm in Judd et al (2003) to calculate the equilibrium values for all variables in the model. First, a Negishi approach yields agents' consumption allocations.…”

Section: Dynamically Complete Marketsmentioning

confidence: 99%

Bond Ladders and Optimal Portfolios

2009

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This paper examines portfolios within the framework of a dynamic asset-pricing model when investors can trade equity assets as well as bonds of many different maturities. We specify the model so that investors have demand for both a risky and a safe income stream. We characterize the resulting optimal equilibrium stock and bond portfolios and document that optimal bond investment strategies partly exhibit a ladder structure, if a sufficient number of bonds is available for trade. The main contribution of the paper is to show that complete ladders with all bonds in the economy combined with a market portfolio of equity assets are nearly optimal investment strategies. This paper therefore provides a rationale for bond ladders as a popular bond investment strategy.

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