2019/06/16 by Bar Light, Light, Bar
Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #Constant elasticity of substitution #Consumption (sociology) #Economic Theory and Policy #Economic theories and models #Economics #Elasticity of substitution #General equilibrium theory #Market clearing #Microeconomics #Production (economics) #Relative price #econ.TH
paper · pdf · doi:10.48550/arxiv.1906.06810
published in arXiv (Cornell University) (Cornell University)
openalex publication_date 2019/06/16 · arxiv created 2021/03/22 · arxiv updated 2021/03/23 · openalex created_date 2022/07/28 · openalex updated_date 2026/08/06
We study a pure-exchange incomplete-market economy with heterogeneous agents.\nIn each period, the agents choose how much to save (i.e., invest in a risk-free\nbond), how much to consume, and which bundle of goods to consume while their\nendowments are fluctuating. We focus on a competitive stationary equilibrium\n(CSE) in which the wealth distribution is invariant, the agents maximize their\nexpected discounted utility, and both the prices of consumption goods and the\ninterest rate are market-clearing. Our main contribution is to extend some\ngeneral equilibrium results to an incomplete-market Bewley-type economy with\nmany consumption goods. Under mild conditions on the agents' preferences, we\nshow that the aggregate demand for goods depends only on their relative prices\nand that the aggregate demand for savings is homogeneous of degree in prices,\nand we prove the existence of a CSE. When the agents' preferences can be\nrepresented by a CES (constant elasticity of substitution) utility function\nwith an elasticity of substitution that is higher than or equal to one, we\nprove that the CSE is unique. Under the same preferences, we show that a higher\ninequality of endowments does not change the equilibrium prices of goods, and\ndecreases the equilibrium interest rate. Our results shed light on the impact\nof market incompleteness on the properties of general equilibrium models.\n