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Journal Articles Games and Economic Behavior Year : 2019

On endogenous formation of price expectations

Abstract

We study a two-period exchange economy with complete financial markets and endogenous borrowing constraints. Contrary to perfect foresight paradigm, we assume that agents are heterogeneous in their ability to forecast future prices. We introduce a new equilibrium concept, called informationally constrained equilibrium, where the formation of price expectations is endogenous and reflects the revelation of information from observing bounds on liabilities designed to ensure solvency at any contingency. We prove that, under standard assumptions, an equilibrium always exists and we characterize the degree of information revealed by the endogenous debt limits.

Dates and versions

hal-03261223 , version 1 (15-06-2021)

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Cuong Le Van, Paulina Navrouzoglou, Yiannis Vailakis. On endogenous formation of price expectations. Games and Economic Behavior, 2019, 115, pp.436-458. ⟨10.1016/j.geb.2019.03.004⟩. ⟨hal-03261223⟩
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