Intertemporal coordination in two-period markets |
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Authors: | Sayantan Ghosal |
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Institution: | Department of Economics, University of Warwick, Coventry CV4 7AL, UK |
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Abstract: | This paper studies the stability of the intertemporal coordination dynamics when the common knowledge of individual expectations of future prices is perturbed in a neighborhood of a perfect foresight equilibrium. The main forces that affect stability are: (i) the effect of a change in asset demand on second period spot market prices, and (ii) the effect on asset demand of a small change in second period prices. In an intertemporal market game whose interior Markov perfect equilibria correspond to perfect foresight equilibria, it is shown that though M-rationalizability implies the stability of the intertemporal dynamics, the converse is not always true. |
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Keywords: | D50 C70 |
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