Multiple Equilibria in Noisy Rational Expectations Economies
Research Seminar by Dr. Gyuri Venter.
Date and Time: 13 November 2023, Monday, 11:40-1:00 (Budapest time)
Venue: Corvinus Main Building, Second Floor, Room E.279.1
Language: English
Abstract: We study equilibrium uniqueness in standard noisy rational expectations economies with asymmetric or differential information a la Grossman and Stiglitz (1980) and Hellwig (1980). The standard linear equilibrium of Grossman and Stiglitz (1980) is the unique equilibrium with a continuous price function. However, we also construct a tractable class of equilibria with discontinuous prices that have very different economic implications, including (i) jumps and crashes, (ii) “upward-sloping” demand curves, and (iii) price drift. Discontinuous equilibria can generate higher volatility, uncertainty, and illiquidity in recessions versus booms, and can feature higher welfare than the standard linear one. Discontinuous equilibria can be arbitrarily close to being fully-revealing and also exist under more general distributional assumptions and in the model of Hellwig (1980).
Joint paper with Dömötör Pálvölgyi (ELTE) and Liyan Yang (Toronto Rotman).
Click here to access the author’s website.
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