recursive equilibria in dynamic economies with stochastic production in this paper we prove the existence of recursive equilibria in stochastic production economies with infinitely lived agents and incomplete financial markets we consider a general dynamic model with several commodities which encompasses heterogeneous agent versions of both the lucas asset pricing model and the stochastic neo classical growth model as special cases our main assumption is that there are atomless shocks to fundamentals that have a purely transitory component and a component that does not depend on last period s shocks directly

existence of competitive equilibrium with incomplete markets abstract the existence of competitive equilibrium is proved for a model with incomplete futures markets the security returns in this model are denominated in terms of units which represent certain composite commodities specific to events

money and prices under uncertainty we study whether monetary economies display nominal indeterminacy equivalently whether monetary policy determines the path of prices under uncertainty in a simple stochastic cash in advance economy we find that indeterminacy arises and is characterized by the initial price level and a probability measure associated with state contingent nominal bonds equivalently monetary policy determines an average but not the distribution of inflation across realizations of uncertainty the result does not derive from the stability of the deterministic steady state and is not affected essentially by price stickiness nominal indeterminacy may affect real allocations in cases we identify our characterization applies to stochastic monetary models in general and it permits a unified treatment of the determinants of paths of inflation copyright 2005 wiley blackwell

value of information in competitive economies with incomplete markets we study the value of public information in competitive economies with incomplete markets we show that generically the welfare effect of a change in the information available prior to trading can be in any direction there exist changes in information that make all agents better off and changes for which all agents are worse off in contrast for any change in information a pareto improvement is feasible that is attainable by a planner facing the same informational and asset market constraints as agents in this sense the response of competitive markets to changes in information is typically not socially optimal

the structure of financial equilibrium with exogenous yields the case of incomplete markets1 this paper presents an analysis of the structure of competitive equilibrium in a model whose principal feature is incomplete financial markets formulated in the spirit of arrow specifically the overall payoffs or returns from financial instruments are assumed to be fixed or predetermined independently of the operation of the economy and these instruments are assumed to be fewer in number than required to span all potential spot markets for commodities our main result establishes that market incompleteness generates a corresponding degree of allocation indeterminateness suppose there are n 1 spot markets but only 0 m n linearly independent financial instruments so that the deficiency in financial markets is 0 n n m n then subject to some relatively innocuous technical qualifications the set of equilibrium allocations contains a smooth n dimensional submanifold we also indicate how real indeterminacy may increase when returns for example the market price and promised interest on an ordinary bond are treated as variables rather than parameters

adjustment costs and indeterminacy in perfect foresight models abstract this paper suggests a method for resolving indeterminacy of equilibrium in perfect foresight models and applies it to several existing models quadratic adjustment costs are introduced into models with multiple equilibria and the limiting behavior of the resulting solutions is studied as the adjustment costs go to zero the method is shown to be useful in selecting among feasible equilibria in examples in which there is local indeterminacy

optimality and monetary equilibria in stationary overlapping generations models with long lived agents growth versus discounting abstract this paper studies the relationship between the existence and optimality of a monetary steady state and the nonoptimality of nonmonetary steady states we construct a sequence of stationary overlapping generations economies with longer and longer lived generations in which all agents maximize a discounted sum of utilities with a common discount rate under some assumptions the following result is established if the discount rate is greater less than the population growth rate then eventually every nonmonetary steady state is optimal nonoptimal and a monetary steady state does not exist exists and is optimal

equivariant general equilibrium theory abstract the main purpose of this paper is to investigate the properties of a version of the general equilibrium model where symmetry considerations are explicitely taken into account this version called the equivariant model is shown to be a natural framework to study sunspot equilibria the problem of sunspot equilibria can then be viewed as one of symmetry breaking existence of asymmetric or sunspot equilibria is addressed through the dual approach of price income equilibrium analysis that splits the problem of breaking symmetries into two separate easier problems

general equilibrium with endogenously incomplete financial markets abstract the present paper studies a class of general equilibrium economies with imperfectly competitive financial intermediaries and price taking consumers intermediaries optimally choose the securities they issue and the bid ask spread they charge financial intermediation is costly and hence markets are endogenously incomplete an appropriate equilibrium concept is developed and existence is proved competitive equilibria for this class of economies display full indexation of securities payoffs and monetary neutrality even if intermediaries are restricted to issue nominal securities and financial markets turn out to be incomplete this is in sharp contrast with the indeterminacy and non neutrality results established in the literature for incomplete markets economies with exogenously given nominal securities journal of economic literaturclassification numbers d52 g20

uncertainty management in the unit commitment problem uncertainty in power systems operations has been traditionally managed by multistage decision making and operating reserve requirements a familiar example of multistage decisions is day ahead unit commitment and real time economic dispatch an alternate approach for managing uncertainty is a stochastic formulation which allows the explicit modeling of the sources of uncertainty this paper compares stochastic and reserve methods and evaluates the benefits of a combined approach for the efficient management of uncertainty in the unit commitment problem numerical studies show that unit commitment solutions obtained for the combined approach are robust and superior with respect to the traditional approach in terms of both economics and reliability metrics

the overlapping generations model iii the case of log linear utility functions existence of competitive equilibria in the overlapping generations model has been studied in some detail see 4 6 9 we need to know more about the properties of these equilibria how many are there how do they depend on the basic parameters of the economy we also need to compare the set of monetary competitive equilibria with the set of nonmonetary competitive equilibria are there vastly more monetary equilibria than nonmonetary equilibria analysis of the properties of competitive equilibria is for the overlappinggenerations model an important but difficult task in his seminal article 8 samuelson put it this way if we take any finite stretch of time and write out the equilibrium conditions we always find them containing discount rates from before the finite period and discount rates from afterward we never seem to get enough equations lengthening our time periods turns out always to add as many new unknowns as it supplies equations samuelson suggested that rather than facing this difficulty directly we can try to cut the gordian knot by our special assumption of stationariness

a note on the implementation of rational expectations equilibria abstract in a sequence economy the implementation of rational expectations equilibria requires an appropriate selection of temporary equilibria in each period the note shows that this selection requires more information than is available from current excess demand behaviours

evolution and market behavior with endogenous investment rules abstract in a repeated market for short lived assets we investigate wealth driven selection among investment rules that depend on endogenous market variables such as current and past prices we study the random dynamical system describing prices and wealth dynamics and characterize local stability of the long run equilibria in which one or a group of traders dominate multiplicity of stable and unstable equilibria leading to path dependency and persistent heterogeneity turns out to be a common phenomenon generated by two different mechanisms firstly conditioning investment decisions on endogenous market variables implies that the relative performance of investment rules in terms of average growth rates may be different for different prevailing prices so that the market may fail to select a global winner secondly the feedback existing between past asset prices and current investment decisions can lead to a form of deterministic overshooting

currencies and the allocation of risk the welfare effects of a monetary union in a general equilibrium model with incomplete asset markets nominal securities and mean variance preferences a monetary union is desirable when the gain from eliminating excess volatility of nominal variables exceeds the cost of reducing the number of currencies with which to hedge risks copyright 1998 by american economic association

optimal innovation of futures contracts this article presents a simple model of the innovation of new futures contracts by transaction volume maximizing futures exchanges in incomplete markets under uncertainty with mean variance preferences and proportional transactions costs we characterize the set of nash equilibria for a number of exchanges simultaneously or sequentially choosing contracts the optimal monopolistic contract design is shown to be pareto optimal an example shows the failure of pareto optimality for aparticularnash equilibrium likewise in a monopolistic multiperiod setting an example shows the failure of pareto optimality given an incentive for the exchange to induce turnover

prices asset markets and indeterminacy abstract competitive equilibrium allocations are indeterminate when the net trades in commodities are constrained while the asset market is incomplete the model encompasses economies with deferred payment for commodities economies with nominal assets and economies with bundling of commodities and assets journal of economic literature classification numbers d50 d52

land leasing and local government behaviour in china evidence from beijing since 2004 two auction mechanisms listing auctions and tender auctions have played a dominant role in land lease arrangements for real estate development in beijing listing auctions in land markets are similar to general english auctions where bidders offer the highest price to win however in tender auctions winners are determined by the bidding price and the bidder s financial capability and reputation based on granted land parcels from 2006 to 2012 in beijing this paper attempts to examine the price differences between the two auctions and the role of land auction in urban development and price stabilisation we find that land policy in beijing which aims to stabilise land prices and to provide low price residences has been integrated with urban development planning in terms of spatial and density pattern land leasing in beijing is not only a land policy but also a part of the strategy framework of local development

exponentially fading memory learning in forward looking economic models abstract in this paper we analyze forward looking economic models under bounded rationality we consider a learning mechanism characterized by exponentially fading memory with a learning step not vanishing in the limit the dynamics of the model under bounded rationality can be parametrized with respect to the memory of the learning mechanism we show that memory plays a stabilizing role in a local sense it induces local convergence towards a stationary rational expectations equilibrium and in some cases it does not allow for nonperfect foresight attractors obtained through local bifurcations we discuss this learning mechanism in pure exchange overlapping generations models we also analyze models with predetermined state variables in this setting the effect of memory on the learning dynamics is controversial

stochastic joint optimization of wind generation and pumped storage units in an electricity market one of the main characteristics of wind power is the inherent variability and unpredictability of the generation source even in the short term to cope with this drawback hydro pumped storage units have been proposed in the literature as a good complement to wind generation due to their ability to manage positive and negative energy imbalances over time this paper investigates the combined optimization of a wind farm and a pumped storage facility from the point of view of a generation company in a market environment the optimization model is formulated as a two stage stochastic programming problem with two random parameters market prices and wind generation the optimal bids for the day ahead spot market are the ldquohere and nowrdquo decisions while the optimal operation of the facilities are the recourse variables a joint configuration is modeled and compared with an uncoordinated operation a realistic example case is presented where the developed models are tested with satisfactory results

ambiguity aversion and incompleteness of financial markets it is widely thought that incomes risks can be shared by trading in financial assets but financial assets typically carry some risk idiosyncratic to them hence disposing incomes risk using financial assets will involve buying into the inherent idiosyncratic risk however standard theory argues that diversification would reduce the inconvenience of idiosyncratic risk to arbitrarily low levels this argument is less robust than what standard theory leads us to believe ambiguity aversion can exacerbate the tension between the two kinds of risks to the point that classes of agents may not want to trade some financial assets thus theoretically the effect of ambiguity aversion on financial markets is to make the risk sharing opportunities offered by financial markets less complete than it would be otherwise

equilibria with options existence and indeterminacy abstract this paper studies an economy in which trading takes place in spot commodity markets and incomplete futures markets for assets of various types there are real assets stocks or commodity futures options on real assets and a riskless nominal bond we show that for a generic set of economies parametrized by consumers endowments and structure of real assets there exists an equilibrium moreover we show that generically the set of equilibrium allocations of commodities contains a manifold of a high dimension even if the market structure is potentially complete i e the number of assets including options equals or exceeds the number of states of nature and the arrow debreu equilibrium can be achieved through sequential trading in spot and futures markets there are multiple inefficient equilibria without full rank of the asset payoff matrix

minimization of imbalance cost trading wind power on the short term power market present power markets are designed for trading conventional generation for wind generation to participate in a short term energy market lengthy wind power production forecasts are required although wind speed forecasting techniques are constantly improving wind speed forecasts are never perfect and resulting wind power forecast errors imply imbalance costs for wind farm owners in this paper a new method for minimization of imbalance costs is developed stochastic programming is used to generate optimal wind power production bids for a short term power market a wind power forecast error is represented as a stochastic process the imbalance costs resulting from this strategy are then compared to the case when wind power production bids on a short term power market are based directly on a wind speed forecast

allocative effects of financial assets and the long run neutrality of money when markets are incomplete abstract we analyze the allocative role of money as a numeraire in an intertemporal general equilibrium model with incomplete financial markets and nominal financial instruments it is shown that regardless of their return specification nominal assets in net supply increase the consumption risk and trigger an endogenous monetary process which diminishes the influence of these assets on the equilibrium allocation through time the nonneutrality of money claimed in the recent literature is a temporary phenomenon only asymptotically the traditional neutrality theorems are valid

stationary monetary equilibria in overlapping generations models with incomplete markets abstract the objective of this paper is to study the stationary monetary equilibria of a stochastic overlapping generations model with a general incomplete asset structure it is proved that a stationary equilibrium with a nonzero price of money generically exists and is locally isolated when there is outside money for an open set of economies there is an equilibrium with positive money prices in all states the equilibrium is also given a neat characterisation in terms of the properties of the underlying state prices with only inside money there will instead be a continuum of equilibria journal of economic literature classification numbers d52 d90 e40

the impact of policy actions and future energy prices on the cost optimal development of the energy system in norway and sweden abstract this paper studies the effects of policy actions on the energy systems in norway and sweden including a nuclear shutdown a cancelation of restricted hydropower and an expansion of export capacity to europe this study apply a stochastic times model that considers the short term uncertainty in electricity supply and value the flexibility of hydro reservoirs it is the first time this approach is used to quantify the effects of these policy actions on cost optimal investments and operations to consider the uncertainty of the energy market we analyse the policy actions under four different price developments for biomass fossil fuels and electricity the results demonstrate that our stochastic approach provides different model decisions compared to the traditional deterministic approach further we show that the future role of the large hydro reservoirs in norway and sweden depends both on the adopted policy actions and on future energy prices and that the policy actions have a significant impact on the development of the energy system this insight is valuable when considering the development and management of the hydro reservoirs it is also valuable for other european countries so that they can evaluate the interplay of the hydro reservoirs with other energy storage options

market uncertainty correlated and sunspot equilibria in imperfectly competitive economies first version received june 1988 final version accepted november 1990 eds an imperfectly competitive economy is very prone to market uncertainty including uncertainty about the liquidity or thickness of markets we show in particular that there exist stochastic equilibrium outcomes in nonstochastic market games if and only if the endowments are not pareto optimal we also provide a link between extrinsic uncertainty arising in games e g correlated equilibria and extrinsic uncertainty in market economies e g sunspot equilibria a correlated equilibria to the market game is either a sunspot equilibrium or a non sunspot equilibrium to the related securities games but the converse is not true in general

the structure of sunspot equilibria the role of multiplicity this paper examines the structure of sunspot equilibria in a standard two period exchange economy with real assets we show that for a generic choice of utility functions and endowments there exists an open set of real asset structures whose payoffs are independent of sunspots such that the economy with this asset structure has a regular sunspot equilibrium an important implication of our result is that the multiplicity of non sunspot equilibria is not necessary for the existence of sunspot equilibria our technique is general and can be applied to show the existence of sunspot equilibria in other frameworks this paper analyses the structure of sunspot equilibria in a standard two period competitive exchange economy with more than one consumption good in each period and a real asset which pays a bundle of commodities there is no uncertainty except for sunspots we show that for an open and dense subset of the set of utility functions and endowments there exists an open set of real asset structures with payoffs independent of sunspots such that the resulting economy with an asset structure in this set has a regular sunspot equilibrium we also show that this result is tight in the space of utility functions endowments and asset structures there is in fact an open set of economies for which sunspot equilibria do not exist moreover our argument provides a systematic method which allows us to find generically all the sunspot equilibria of a given economy thus it can be used as a tool for studying the global structure of the set of sunspot equilibria not just the existence of a sunspot equilibrium the dependence of the existence of sunspot equilibria on the particular specification of the payoff of the asset provides an interesting contrast with the fact that the set of equilibrium allocations of the underlying certainty economy does not depend on the asset structure recall that when markets are complete preferences and endowments completely determine the set of competitive equilibria in our setting markets are complete in the underlying certainty economy so if payoffs change the price of the asset will change accordingly but there is no effect on the equilibrium consumption of the certainty economy thus the fundamentals of the certainty economy are the distribution of endowments and preferences among consumers and our result implies that the existence of sunspot

existence and local uniqueness of functional rational expectations equilibria in dynamic economic models abstract this paper established the existence and local uniqueness of stationary functional rational expectations equilibria for an open set of multi good multi agent pure exchange overlapping generations models in which agents endowments are random such equilibria are given by prices which are functions of one period lagged prices and endowments and of current endowments

a sparsity based model of bounded rationality this article defines and analyzes a sparse max operator which is a less than fully attentive and rational version of the traditional max operator the agent builds as economists do a simplified model of the world which is sparse considering only the variables of first order importance his stylized model and his resulting choices both derive from constrained optimization still the sparse max remains tractable to compute moreover the induced outcomes reflect basic psychological forces governing limited attention the sparse max yields a behavioral version of basic chapters of the microeconomics textbook consumer demand and competitive equilibrium i obtain a behavioral version of marshallian and hicksian demand arrow debreu competitive equilibrium the slutsky matrix the edgeworth box roy s identity and so on the slutsky matrix is no longer symmetric nonsalient prices are associated with anomalously small demand elasticities because the consumer exhibits nominal illusion in the edgeworth box the offer curve is a two dimensional surface rather than a one dimensional curve as a result different aggregate price levels correspond to materially distinct competitive equilibria in a similar spirit to a phillips curve the arrow debreu welfare theorems typically do not hold this framework provides a way to assess which parts of basic microeconomics are robust and which are not to the assumption of perfect maximization jel codes d01 d03 d11 d51

adjustment costs learning and indeterminacy abstract i compare the adjustment cost and learning approaches to resolving indeterminacy of perfect foresight equilibrium in a continuous time model with local indeterminacy rapid learning tends to select different perfect foresight equilibria of the original model than does the inclusion of vanishing adjustment costs this difference has implications for the dynamic response of the economy to unanticipated shocks

a role for monetary policy when prices reveal information an example in an example monetary policy can determine the information revealed by prices and thus it can be effective monetary policy that varies only with public information can guarantee the full revelation of information at equilibrium which is optimal full indexation need not attain full revelation and as a consequence need not implement an optimal allocation

on non uniqueness in rational expectations models an attempt at perspective abstract many macroeconomic models involving rational expectations give rise to an infinity of solution paths even when the models are linear in all variables some writers have suggested that this non uniqueness constitutes a serious weakness for the rational expectations hypothesis one purpose of the present paper is to argue that the non uniqueness in question is not properly attributable to the rationality hypothesis but instead is a general feature of dynamic models involving expectations it is also argued that there typically exists in a very wide class of linear rational expectations models a single solution that excludes bubble or bootstrap effects one that occur only because they are arbitrarily expected to occur a systematic procedure for obtaining solutions free from such effects is introduced and discussed in addition this procedure is used to interpret and reconsider several prominent examples with solution multiplicities including ones developed by fischer black and john b taylor

options sunspots and the creation of uncertainty we present two examples in which the addition of an option market leads to sunspot equilibria despite the fact that no sunspot equilibria exist without the market these examples highlight limitations in two prevalent views of option markets it is often assumed that option markets help complete otherwise incomplete markets we demonstrate that they can instead increase the number of events agents wish to insure against as in black and scholes it is often assumed that option markets are redundant we demonstrate that an option market may not be redundant even when markets were complete before its introduction

short term uncertainty in long term energy system models a case study of wind power in denmark when wind power constitutes a larger share of the electricity production mix credible and reliable modelling of its operation in long term investment models becomes increasingly important in this paper the intermittent characteristics of wind power are modelled as a stochastic parameter in a long term times model of the danish heat and electricity sector to our knowledge this is not a common approach in long term investment models and has not been done previously in times where the short term uncertainty of wind power is normally taken into account by a deterministic constraint that ensures excess back up capacity in our model the stochasticity gives lower total energy system costs significant lower investments in wind power less expected electricity export and higher expected biomass consumption compared to using the traditional deterministic approach also the deterministic investment strategy can be insufficient in periods with poor wind conditions based on our findings we recommend using a stochastic representation of intermittent renewables in long term investment models to provide more solid results for decision makers

comparative statics and perfect foresight in infinite horizon economies does a pure exchange economy with an infinite time horizon have determinate perfect foresight equilibria when there is a finite number of infinitely lived agents equilibria are generically determinate this is not true with overlapping generations of finitely lived agents we ask whether the initial conditions together with the requirement of convergence to a steady state locally determine an equilibrium price path in this framework there are many economies with isolated equilibria many with continua of equilibria and many with no equilibria at all with two or more goods in every period not only can the price level be indeterminate but relative prices as well furthermore such indeterminacy can occur whether or not there is fiat money and whether or not the equilibria are pareto efficient this paper considers whether infinite horizon economies have determinate perfect foresight equilibria this question is of crucial importance if instead equilibria are locally indeterminate not only are we unable to make comparative static predictions but the agents in the model are unable to determine the consequences of unanticipated shocks the idea underlying perfect foresight is that agents expectations should be the actual future sequence predicted by the model if the model does not make determinate predictions the concept of perfect foresight is meaningless we consider two extreme cases the first with a finite number of infinitely lived consumers and the second with an infinite number of finitely lived consumers an overlapping generations model both are models of stationary pure exchange economies no production including the storage of goods between periods can occur these models are unrealistic but are the easiest to study extensions of the results of this paper to models with production infinitely lived assets and mixtures of the two types of consumers are presented by muller and woodford 29 when there is a finite number of infinitely lived consumers we argue that equilibria are generically determinate this is because the effective number of equations determining equilibria is not infinite but equal to the number of agents minus one and must determine the marginal utility of income for all but one agent generically near an equilibrium these equations are independent and exactly determine the unknowns when there are infinitely many overlapping generations this reasoning breaks down an infinite number of equations is not necessarily sufficient to determine

determinacy of equilibrium in an overlapping generations model with heterogeneous agents abstract we study the determinacy of perfect foresight equilibrium near a steady state in an overlapping generations model with production and both altruistic and non altruistic agents having distinct utility functions the proportion of each type of consumer is exogenously given our main results show that when there are positive stationary bequests some standard assumptions on preferences and technology rule out local indeterminacy for any positive value of the proportions in the particular case of a separable utility function for altruistic agents we prove that the determinacy property does not depend on the size of the infinite lived altruistic dynasties journal of economic literature classification numbers c62 d91 o21 o41

a general equilibrium analysis of option and stock market interactions the traditional pricing methodology in finance values derivative securities as redundant assets that have no impact on equilibrium prices and allocations this paper demonstrates that when the market is incomplete primary and derivative asset markets generically interact the valuation of derivative and primary security prices depend on the contractual characteristics of the derivative assets available in a version of the mossin mean variance model the authors analyze an equilibrium in which a call option derivative asset is traded and the equilibrium stock price primary asset increases when the options market is opened copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

notes on sequence economies transaction costs and uncertainty abstract a sequence economy is an economy with trade at every date and state it is inessential if its equilibria coincide with those of the corresponding arrow debreu economy we examine some of the conditions for essentiality 1 if there are transaction costs then even if all states of nature are spanned by the securities the economy is generically essential 2 in the absence of transaction costs we show by examples that spanning is neither necessary nor suficient for inessentiality the former because some state distinctions may be irrelevant the latter because of possible multiple spot equilibria for a given state 3 we speculate on the possibility that price contingent securities might complete the markets and more generally on the idea of endogenous uncertainty journal of economic literature classification number c62

stochastic equilibria with incomplete financial markets abstract we demonstrate the existence of equilibria with incomplete financial markets for stochastic economies whose information structure is given by an event tree restricting attention to purely financial securities those paying in units of account e g dollars financial markets may be incomplete some consumption streams may be impossible to obtain by any trading strategy securities may be individually precluded from trade at arbitrary states and dates sufficient conditions for the existence of stochastic equilibria are continuous convex strictly monotonic preferences and strictly positive aggregate endowments these conditions are weakened a corollary states that any regime of security prices precluding arbitrage can be embedded in an equilibrium

inflation stabilization risk in economies with incomplete asset markets abstract in economies with high inflation nominal financial markets disappear in the context of a general equilibrium model with incomplete asset markets this paper shows that this phenomenon can be explained by an inflation process characterized by a high expected inflation coupled with a low probability of a stabilization of the price level and that the disruption of trade in nominal contracts is socially costly

sequentially complete markets remain incomplete we show by means of an example that the result of arrow arrow k j 1953 le role des valeurs boursieres pour la repartition la meilleure des risques econometrie 41 47 cnrs paris translated as the role of securities in the optimal allocation of risk bearing review of economic studies 31 91 96 is problematic when there exist multiple equilibrium continuations to the initial period component of an intertemporal equilibrium

financial fragility liquidity and asset prices we define a financial system to be fragile if small shocks have disproportionately large effects in a model of financial intermediation we show that small shocks to the demand for liquidity cause either high asset price volatility or bank defaults or both furthermore as the liquidity shocks become vanishingly small the asset price volatility is bounded away from zero in the limit economy with no shocks there are many equilibria however the only equilibria that are robust to the introduction of small liquidity shocks are those with non trivial sunspot activity

market participation and sunspot equilibria we investigate the structure of competitive equilibria in an exchange economy parametrized by i endowments and ii restrictions on market participation for arbitrary regular endowments if few consumers are restricted there are no sunspot equilibria if endowments are allowed to vary while restrictions on market participation are fixed there is a generic set of preferences such that sunspot equilibria exist for a non empty subset of endowments our analysis extends to the general case of an arbitrary number of restricted consumers the results of cass and shell for the polar cases in which either i no consumers are restricted or ii all consumers are restricted

equilibrium in economies with incomplete financial markets abstract this paper analyses an exchange economy in the absence of arrow debreu complete markets it is assumed that trading takes place in the sequence of spot markets and futures markets for securities payable in units of account unlimited short selling in securities is allowed a general equilibrium in such an economy is a set of current and future prices contingent on uncertain events and a set of individual plans such that all markets are cleared the existence of such an equilibrium is proved under usual assumptions this is in contrast to the case of futures markets for contingent futures commodities where an equilibrium may not exist the optimality of equilibrium allocations is also discussed

equilibrium in economies with financial markets uniqueness of expectations and indeterminacy abstract we consider two period pure exchange economies with uncertainty and complete or incomplete asset markets assets are nominal if the number of agents and of period zero commodities is large enough there is a dense residual set of economies parametrized by utility functions such that for each pair of distinct financial equilibria spot zero equilibrium prices are different agents observing first period equilibrium prices can formulate exact forecasts on future equilibrium prices notwithstanding the real indeterminacy of the set of financial equilibria if the asset market is complete the result is true for an open and dense set of economies journal of economic literatureclassification numbers d52 d80

multiplicity of equilibria a pure exchange general equilibrium model is considered and the equilibrium set is studied it is shown for all total endowments and an open and dense set of preferences that if there arel 2 commodities andm 2 consumers then there exists a set of distributions of endowments with nonempty interior such that the associated economies have at leastl 1 min l m equilibria forl min l m even and at leastl 2 min l m equilibria forl min l m odd journal of economic literature classification number d51

sraffian indeterminacy in general equilibrium the indeterminacy claim for competitive price systems made by sraffa 1960 is examined by placing sraffa s work in an intertemporal general equilibrium model we show that indeterminacy occurs at a natural type of equilibrium moreover the presence of linear activities instead of a differentiable technology is crucial and the indeterminacy is constructed as in sraffa by fixing some or all of the economy s aggregate quantities on the other hand an extra condition that some factors have inelastic excess demand is necessary and unlike sraffa s model relative prices must be allowed to vary through time sraffian indeterminacy and the generic finiteness of the number of equilibria are reconciled by showing that indeterminacy occurs at a measure zero set of endowments we use an overlapping generations model to show that these endowments nevertheless arise systematically and that indeterminacy does not occur when relative prices are constant through time near the beginning of his production of commodities by means of commodities 1960 sraffa specifies a system of equations that prices must obey if the capital invested in each sector of an economy is to earn the same rate of profit the system contains one more unknown than equation leading sraffa to conclude that prices and wage and interest rates in particular are indeterminate sraffa s book has since been read as arguing that some outside non economic consideration must therefore set prices and the distribution of income part of the controversy the book has provoked is due to sraffa s apparent agreement with the neoclassical emphasis on optimization and competitive markets the standard sraffian system of equations is nothing other than the first order conditions that hold for price taking profit maximizing firms using linear activities but if sraffa s assumptions are in accord with neoclassical theory how can his assertions of indeterminacy be correct i examine sraffa s indeterminacy argument and his critique of neoclassical economics by embedding his equations in a general equilibrium model as we will see the indeterminacy claim properly interpreted correctly describes the equilibria with strictly positive prices moreover the indeterminacy demonstrated here closely duplicates the indeterminacy sraffa claimed first it is prices alone that are indeterminate i follow sraffa s striking procedure of fixing the quantities of goods produced an infinity of normalized price vectors support a single vector of aggregate quantities second sraffa seemed to claim and his advocates e g robinson 1961 have certainly claimed that his book is a critique of marginal productivity theory correspondingly indeterminacy in the present model hinges on marginal products not being everywhere well defined when there are linear activities with smooth production sets our indeterminacy arguments do not work third the dimension of the indeterminacy i demonstrate matches sraffa s accounting of the dimension of indeterminacy

equilibrium indeterminacy in a model of constrained financial markets i present a general equilibrium model with incomplete markets in which assets pay in units of a numeraire good in this economy agents are constrained to negotiate the same amount of assets in different states of the world different from the standard result of economies with real assets equilibrium indeterminacy can arise depending on the structure of the financial markets equilibrium fails to be unique when it is not possible to transfer wealth between states in which consumers trade a pair of assets that face the same restriction

revitalising the wind power induced merit order effect to reduce wholesale and retail electricity prices in australia this paper investigates the effect of increasing the number of wind turbine generators on wholesale spot prices in the australian national electricity market s nem given the existing transmission grid from 2014 to 2025 we use a sensitivity analysis to evaluate the effect of five different levels of wind power penetration on prices ranging from scenario a no wind to scenario e that includes existing and planned wind power sufficient to meet australia s original 2020 41twh large scale renewable energy target lret we find divergence in prices between states and similar prices for nodes within states this supports the garnaut climate change review assessment on the prevalence of gold plating the intrastate transmission network and underinvesting in interstate connectivity we find that increasing wind power penetration decreases wholesale spot prices but that retail prices have increased in deregulated south australia and queensland similarly in victoria we argue that there is a pressing need to split the large generator retail companies into separate retail and generator companies and to reassess regulatory rules more generally interconnector congestion limits the potential for wind power to further reduce wholesale prices across the nem so the need for a high capacity transmission backbone in the nem is becoming clearer and will become pressing when australia moves beyond its current 2020 lret

real indeterminacy with financial assets abstract it is shown that in a two period general equilibrium securities model where assets pay in money the generic dimension of the set of equilibrium allocations in the incomplete market situation is s 1 where s is the number of assets hence the degree or real indeterminacy is independent of the number of assets this result requires beyond fewer assets than states that the number of traders be larger than the number of securities and that the asset return matrix be in general position the generic dimension for arbitrary returns matrix is also obtained it is argued in addition that the presence of real or mixed assets does not by itself lower the degree of indeterminacy

renewable energy sources in european energy supply and interactions with emission trading abstract this paper presents a model based approach which allows to determine the optimised structure and operation of the eu 15 electricity supply under different political and economic framework conditions with a focus on the integration of renewable energy sources for electricity generation res e in the eu 15 countries the approach is designed to take into account the characteristics of power production from both renewable and conventional sources including the technological and economic characteristics of existing plants as well as those of future capacity expansion options beyond that fuel supply structures are modelled as well as the international markets for power and co 2 certificates with their restrictions thus a profound evaluation of the exploitation of mid term renewable potentials and an assessment of the market penetration of the various renewable power generation technologies under the normative premise of a cost optimised evolution of the power system becomes possible results show that a promotion of renewable energies reduces the scarcity of co 2 emission allowances and thus lowers marginal costs of co 2 reduction up to 30 in 2030 despite the higher overall costs a diversification of the energy resource base by res e use is observed as primarily natural gas and nuclear fuels are replaced

cross border investment expenditure spillovers in european gas infrastructure we investigate the implications of an integrated vis a vis a national perspective regarding investment in natural gas infrastructure in particular we analyze cross border spillovers related to the investment expenditure of five western european countries we develop a practical approach to estimate such cross border investment expenditure spillovers using a multi regional input output model we find that international spillovers are generally larger for employment compensation compared to capital compensation and that the spillovers are unevenly distributed among the countries and the types of labor both high skilled and medium skilled labor is impacted most in the country where the investments take place whereas low skilled labor is mostly generated outside the eu we argue that an integrated european gas infrastructure investment policy is to be recommended

asset pricing and the role of money in an intergenerational economy this note is an attempt to check the robustness of money in the utility function miuf models the parametrization of the utility of money is an ad hoc constraint on the economic model which does not reveal its underlying relation to the parameters of the environment such as tastes technology and endowments from which it arises in particular the various parametrizations do not suggest any interpretation in terms of different roles for money in the exchange process it thus appears that the usefulness of miuf models in economic theory depends critically on the issue of whether or not their qualitative properties are sensitive to the specification of money in the utility function we show that important qualitative conclusions hinge critically on the time specification of the monetary variables which are included in the utility function in particular the ability of common stocks to provide protection against inflation resulting from monetary and real shocks respectively depends sensitively on the way the liquidity services of money are parametrized in the individual preferences

equilibrium in capm without a riskless asset in the mean variance capm without a riskless asset the possibility of satiation sometimes leads to non existence of general equilibrium moreover because portfolio preferences are not necessarily monotone equilibrium asset prices when they exist may be negative or zero to demonstrate the possibility of non existence and to develop an intuitive understanding of when and why equilibrium does or does not exist this paper fully investigates the special case of utility functions linear in mean and variance and partially extends the results to the general case

optimal timing of transmission line investments in the face of uncertain demand an option valuation approach abstract grid based electrification programmes involve irreversible transmission line investments that can be delayed by temporarily resorting to decentralized powet supply technologies in this context decision makers face the difficulty that the future evolution of demand and thus the returns from postponing the transmission line investment are uncertain this imposes an opportunity cost resembling the value of a financial call option therefore standard option valuation techniques can be applied to solve the problem of timing transmission line investments in the presence of stochastic demand it is shown analytically and in terms of numerical examples that demand uncertainty may provide a strong incentive to defer the extension of the grid beyond the date that would be optimal under deterministic conditions

intertemporal separability in overlapping generations models abstract in a pure exchange overlapping generations model with many goods but a single consumer with preferences separable between two periods of life there are generically finitely many equilibria in which money has no value if money has value then generically there is at most one dimension of indeterminacy this property does not generalize to a model with many consumers and general preferences it is shown why a separable representative consumer implies such strong conclusions it is also shown that the absence of income effects leads to similar results

intertemporally separable overlapping generations economies abstract intertemporally separable overlapping generations economies typically have a sequentially finite number of equilibria though the equilibrium set may even with probability 1 be uncountable

improved transmission representations in oligopolistic market models quadratic losses phase shifters and dc lines practical models of competition among power generators who possess market power have generally had to use simplified models of transmission costs and constraints in order to be tractable in particular the linearized dc load flow model has been popular in complementarity and other types of oligopoly models in this paper we show how such models can be generalized to include quadratic losses controllable dc lines and phase shifting transformers these generalizations preserve convexity of the feasible region a property that facilitates computation and proof of solution uniqueness and existence piecewise and successive linearization formulations are also provided that allow consideration of nonlinear losses in models that require linear constraints a simple six bus example illustrates the application of these generalizations in that example the impact of losses on prices is much greater under strategic behavior than under competition large scale applications of these approaches to markets in western north america and the european union illustrate how inclusion of nonlinear losses and controllable dc lines can affect estimates of prices flows and economic efficiency indices resulting from oligopoly models

sequential indeterminacy in production economies abstract a sequential regularity concept is proposed for intertemporal general equilibrium models in addition to the intertemporal economy the economies that endogenously arise through time should also be regular with linear activities however there are open sets of economies that are sequentially indeterminate economies with a continuum of equilibria appear endowments in a measure zero set are necessary for indeterminacy but the passage of time allows these endowments to arise robustly the indeterminacy is related to the degeneracy in mathematical programming that occurs when there are more binding constraints than activities in use an analogous degeneracy condition generically characterizes sequential indeterminacy journal of economic literature classification numbers d50 c61

expectations in stability and in viability in realistic overlapping cohorts models abstract in this paper we shall consider the multi cohort generalization of overlapping generations models namely overlapping cohorts olc models each time period consumers of different ages form expectations on future interest rates and conditionally maximize utility arising from their remaining consumption paths under the condition of zero bequest for every time period a coordinator determines the new interest rate to ensure that the total consumption is equal to the total endowment of the society the message of the paper is the following 1 in olc the dynamics generated by rational expectations is frequently not only unstable but unviable 2 in olc the dynamics generated by naive expectations is practically asymptotically stable and viable around the lower steady state

portfolio choice exchange rates and indeterminacy consider an exchange economy under uncertainty the asset market is incomplete there are fewer assets a than states of nature s assets are nominal and are denominated in n distinct currencies competitive equilibria are distinct if the associated allocations are distinct an economy displays k degrees of indeterminacy if the set of distinct competitive equilibria contains a k dimensional open set generically the economy displays ns a n 1 n degrees of indeterminacy

perils of unconventional monetary policy abstract unconventional monetary policy by relaxing restrictions on the composition of the balance sheet of the central bank compromises control over the stochastic path of inflation or in open economies over the stochastic path of exchange rates if the composition of the balance sheet is unrestricted then the path of inflation is indeterminate this is the case under pure quantitative easing where the target is the size of real money balances in contrast credit easing policies restrict the composition of the portfolio by targeting a specific expansion in the maturity profile of bonds bought and thus can implement a determinate path of inflation the composition of the portfolios traded by monetary fiscal authorities also determines premia in asset and currency markets

ideas institutions and interests in the politics of cross border electricity interconnection greenlink britain and ireland abstract increasing electricity interconnection is necessary for both closer market integration and facilitating more renewable generation across the european union however progress on the ground has been slow this paper adds to the literature on the politics of interconnection through a case study of a proposed link between ireland and great britain we analyse how the institutional setting for investment has evolved at eu and member state level and how the influence of stakeholders is mediated by the ability of actors to define their interests and by institutional points of entry using this framework we examine the greenwire greenlink project we find first that developments in the institutional context especially the adoption of a new cap and floor regime for merchant investment by the gb regulator have had both positive and negative impacts on the project second we find that regulators and governments in the two markets have found it hard to define their interests in the project and its net social benefit due to informational complexities and changes in information over time third the project has met with local public opposition that is strong but which has little leverage due to a lack of institutional entry points

shanghai between state and market in urban transformation economic liberalisation has brought fascinating changes to china s urban development by undermining state control and introducing market forces to economic decision making raising the fundamental

economic criteria for planning transmission investment in restructured electricity markets from an economic perspective a common criterion for assessing the merits of a transmission investment is its impacts on social welfare the underlying assumption in using this criterion is that side payments may be used to distribute the social gains among all market players in reality however since the impacts of an electricity transmission project on different players may vary such side payments are rather difficult to implement this paper focuses on different economic criteria that should be considered when planning electricity transmission investments we propose an electricity transmission investment assessment methodology that is capable of evaluating the economic impacts on the various effected stakeholders and account for strategic responses that could enhance or impede the investment s objectives we formulate transmission planning as an optimization problem under alternative conflicting objectives and investigate the policy implications of divergent expansion plans resulting from the planner s level of anticipation of strategic responses we find that optimal transmission expansion plans may be very sensitive to supply and demand parameters we also show that the transmission investments have significant distributional impact creating acute conflicts of interests among market participants we use a 32 bus representation of the main chilean grid to illustrate our results

germany s nuclear power plant closures and the integration of electricity markets in europe this paper examines the potential implications of national policies that lead to a sudden increase of wind power in the electricity mix for interconnected european electricity markets more specifically it examines market integration before and after the closures of eight nuclear power plants that occurred within a period of a few months in germany during 2011 the short and long run interrelationships of daily electricity spot prices from november 2009 to october 2012 in apx endex belpex epex de epex fr nordpool omel and swissix and wind power in the german system are analysed two mgarch multivariate generalized autoregressive conditional heteroscedasticity models with dynamic correlations are used to assess spot market behaviour in the short run and a fractional cointegration analysis is conducted to investigate changes in the long run behaviour of electricity spot prices results show positive time varying correlations between spot prices in markets with substantial shared interconnector capacity a negative association between wind power penetration in germany and electricity spot prices in the german and neighbouring markets and for most markets a decreasing speed in mean reversion

the political economy of the privatisation of the land market in shanghai this paper examines a land market in which the authority in china has a monopolistic power in the granting of the use rights of land to developers investors for real estate development purposes by granting land in private treaty mode rather than open market competition to the developers investors the chinese authority is actually distorting the land prices achieved in the emerging market which will subsequently lead to a distortion of normal land price behaviour despite the fact that the authority might have been underpricing land in shanghai they continue to sell land through the same private treaty mechanism one possible explanation for this is the deeply rooted ideology of the concept of cost as value while another is the possible political complications involved in the property rights of various invisible interests in land

short memory equilibrium in stochastic overlapping generations economies abstract in stochastic olg exchange economies we show that short memory equilibria the natural extension from deterministic economies of steady states low order cycles or finite state space stationary sunspots equilibria fail to exist generically in utilities as a result even with independent and identically distributed exogenous shocks there is serial correlation in endogenous economic variables in equilibrium this arises even if utilities are time separable some goods inferior and there are no technological lags hence the origins of economic fluctuations can be traced only to the demographic structure of a heterogeneous agent multiple good economy

sraffian indeterminacy a critical discussion this paper is aimed at discussing mandler s interpretation of sraffa s price theory in particular we will analyse mandler s idea that an institutional determination of distribution suggested by sraffa could be solidly advanced only in the case of equilibrium price indeterminacy in intertemporal sequential models first it will be shown that this kind of indeterminacy arises from an arbitrary use of the tendency to a uniform rate of return on the supply prices of capital goods second it will be remarked that when sraffa s contribution is placed as it should within the classical theory of value and distribution no price or sraffian indeterminacy will result finally we will argue that mandler s emphasis on the non arbitrariness of the capital goods endowments which is at the root of his indeterminacy result naturally leads to refer to those normal positions of the economy whose only possible consistent determination is sraffa s price theory copyright the author 2011 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

endogenous price fluctuations in an optimizing model of a monetary economy this paper demonstrates that an optimizing model of a monetary economy can produce perfect foresight equilibria in which the price level fluctuates forever cyclically or chaotically fluctuating equilibria are more likely to exist when the rate of money supply growth is high furthermore the set of equilibrium prices may have a complicated topological structure which poses a more serious problem concerning the validity of comparative statics method than any sort of indeterminacy previously discussed in the literature copyright 1991 by the econometric society

virtual determinacy in overlapping generations models we reappraise the significance and robustness of indeterminacy in overlapping generations models in any of gale s example economies with an equilibrium that is not locally unique for instance perturbing the economy by judiciously splitting each of gale s goods into two close substitutes restricts that indeterminacy to each period s allocation of consumption between those substitutes in particular prices interest rates the commodity value of nominal savings including money and utility levels become determinate any indeterminacy of equilibrium consumption in the perturbed economy is thus insignificant to consumers and some forecasting and comparative statics policy exercises become possible

evaluating interconnector investments in the north european electricity system considering fluctuating wind power penetration with increasing amounts of power generation from intermittent sources like wind transmission planning has not only to account for the expected load curve but also for the stochasticity of volatile power infeeds moreover investments in power generation are no longer centrally planned in deregulated power markets but rather decided on competitive grounds by individual power companies this poses particular challenges when it comes to evaluating the benefits of increased interconnection capacities in large scale systems like the european transmission system within this article an approach is presented which allows assessing the benefits of interconnector investments in the presence of stochastic power infeed and endogenous power plant investments this model uses typical days and hours as well as recombining trees to represent both load and infeed fluctuations an application is presented covering 30 european countries and simultaneously optimizing generation investments and dispatch as well as utilization of transmission lines the model is used to evaluate the benefits of further line extensions between the european mainland and northern european countries we compute welfare gains and the distribution of these gains within a business as usual scenario up to 2030

stationary equilibria with incomplete markets and overlapping generations recent work on general equilibrium models with incomplete financial markets has demonstrated that when assets pay off in units of account equilibrium prices and allocations are indeterminate the equilibria in such models are also generically constrained suboptimal a central planner can typically reallocate assets in such a way as to pareto dominate the competitive equilibrium in this paper the authors consider an overlapping generations model with incomplete markets in which one asset is fiat money they show that when outside money has value in equilibrium the stationary equilibrium prices and allocations are both locally isolated and constrained optimal copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

existence of equilibrium in capm abstract in the mean variance capital asset pricing model capm non monotonicity of preferences may lead to satiation and short selling as well as satiation may lead to non existence of equilibrium this paper identifies several sets of sufficient conditions for equilibrium to exist the nature of the central conditions is to impose bounds on the investors degree of risk aversion as measured by the marginal rate of substitution between mean and standard deviation of return these bounds do not need to hold globally but only in a relevant range of portfolios or combinations of mean and standard deviation

on trees and logs abstract in this paper we contrast the main workhorse model in asset pricing theory the lucas 1978 tree model lt model to a benchmark model in financial equilibrium theory the real assets model ra model it is commonly believed that the two models entail similar conclusions since the lt model is a special case of the ra model but this is simply wrong implications of these models can be strikingly at odds indeed under the widely used log linear specification of households preferences we show that for a large set of initial endowments the lt model even with potentially complete financial markets admits only peculiar financial equilibria in which the stock market is completely degenerate in that all stocks offer the same investment opportunity and yet allocation is pareto optimal we investigate why the lt model is so much at variance with the ra model and uncover new results on uniqueness of financial equilibria and introduction of portfolio constraints obtaining in the lt model but not in the ra model