Accounting and Finance Seminar: Gyuri Venter, University of Warwick

Presenter: Gyuri Venter, University of Warwick

Title: Multiple Equilibria in Noisy Rational Expectations Economies

Abstract: We study equilibrium uniqueness in standard noisy rational expectations economies with asymmetric or di‚erential information `a la Grossman and Stiglitz (1980) and Hellwig (1980).
Th‘e 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 di‚fferent economic implications, including boom and recession regimes, jumps and crashes, “upward-sloping” demand curves, and price drift‰.
Discontinuous equilibria can generate higher volatility, uncertainty, and illiquidity in recessions versus booms, and can feature higher investor welfare. 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).

Host: Thomas Quistgaard Pedersen