Indeterminacy of rational expectations equilibria in sequential financial markets. (Q1410586)

The paper is devoted to the study of a two-period, pure exchange economy with an incomplete nominal asset market where the agents have private information and learn from prices. It is known that the indeterminacy of equilibrium prices, and, generically, allocations, that characterizes economies with an incomplete financial market and nominal assets may be exploited to determine the degree of information disclosure by rational expectations equilibria. The paper provides a general characterization of the dimension of the indeterminacy of rational expectations equilibria. It is shown that generically, the dimension of the real indeterminacy of the fully non-revealing rational expectations equilibrium is: \(SN-\sum_{h=1}^H(N^h-1)B-1\) when \(S>B\), and that it is: \(SN-\sum_{h=1}^H(N^h-1)B-S\) if \(S=B\), where \(S\), \(B\), \(H\) are the number of states, assets and individuals, respectively, \(N^h\) is the number of the private information of individual \(h\), and \(N=\prod_{h=1}^HN^h\) is the total number of the economy-wide information. By contrast, generically the dimension of the real indeterminacy of the revealing equilibria is: \((S-1)N\) when \(S>B\), while if, \(S=B\), the real indeterminacy of a revealing equilibrium is \(0\). The dimension of the real indeterminacy of some special types of partially revealing rational expectations equilibria is estimated. The paper relies on the framework given by \textit{H.~Polemarchakis} and \textit{P.~Siconolfi} [Econ. Theory, 3, No. 4, 645--661 (1993; Zbl 0821.90035)], and studies a general case.