The relation between sunspot effects and multiplicity in incomplete markets models with numeraire assets |
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| Institution: | 1. Maastricht University, Maastricht, The Netherlands;2. Indian Statistical Institute, New Delhi, India;1. MIA, Université La Rochelle, Avenue Michel Crépeau, 17042- La Rochelle, France;2. GREThA, Université de Bordeaux, Avenue Léon Duguit, 33608- Pessac Cedex, France;3. INRA-LAMETA, 2 Place Viala, 34060- Montpellier Cedex 1, France;1. Kyiv School of Economics, 92-94 Dmytrivska, Kyiv 01135, Ukraine;2. Department of Economics, Tippie College of Business, University of Iowa, Iowa City, IA 52242-1994, United States;1. Department of Economics, Yokohama National University, 79-3 Tokiwadai, Hodogaya-ku, Yokohama 240-8501, Japan;2. Faculty of Economics, Fukuoka University, 8-19-1 Nanakuma, Jonan-ku, Fukuoka 814-0180, Japan |
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| Abstract: | This paper considers the necessity and sufficiency of multiple certainty equilibria for sunspot effects, and shows that neither implication is valid. This claim is made for models with incomplete markets and numeraire assets. First, I prove that a multiplicity of certainty equilibria is neither necessary nor sufficient for sunspot effects by way of two counter-examples. Second, I verify over an entire subset of economies that equilibrium with sunspot effects can never be characterized as a randomization over multiple certainty equilibria. |
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| Keywords: | Sunspots Extrinsic uncertainty Numeraire assets Incomplete markets Randomization |
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