Heracles M. Polemarchakis

Generic existence of competitive equilibria with restricted participation

The generic existence of competitive equilibria when the asset market is incomplete extends to economies with restricted participation.

The Identification of Preferences from Equilibrium Prices under Uncertainty

The competitive equilibrium correspondence, which associates equilibrium prices of commodities and assets with allocations of endowments, identifies the preferences and beliefs of individuals under uncertainty; this is the case even if the asset market is incomplete.

Asset markets and the information revealed by prices

SummaryWhen nominal assets serve to transfer revenues across states of the world, noninformative rational expectations equilibria exist. At noninformative prices, the restricted information under which individuals optimize can be modelled as restricted participation of the individuals in asset markets. When assets are nominal, the indeterminacy of equilibrium prices, and, generically, allocations as well, which characterizes economies with restricted participation guarantees that noninformative equilibrium prices exist.

Pareto Improving Taxes

We show that in almost every economy with separable externalities, every competitive equilibrium can be Pareto improved by a package of anonymous commodity taxes that cause prices to adjust and markets to reclear at different levels of individual consumption. The argument can be extended to economies with strategic interactions, incomplete asset markets or asymmetric information. This constrained suboptimality of competitive allocations might provide a rationale for economic policy in economies with externalities.

Redistribution and Welfare

Abstract The redistribution of welfare following a redistribution of endowments is arbitrary.

Intertemporal general equilibrium and monetary theory

The introduction of banks that issue money and supply balances and pay out their profits as dividends is the natural modification of the model of general competitive equilibrium that encompasses monetary economies. Competitive equilibria exist. Nevertheless, eventhough there is a well defined money market, competitive equilibrium allocations are indeterminate.On an event tree with N nodes, of which S terminal, there are N + S degrees of nominal and, possibly real, indeterminacy. Monetary policy removes some degrees of indeterminacy through a choice of instruments, set according to a state-contingent rule. Interest rates are suitable instruments for the control of expected inflation but not of the variability of inflation.Monetary policy is also effective due to redistributive effects and nominal rigidities.

Pareto Improving Price Regulation When the Asset Market is Incomplete

The asset market is incomplete. Fix-price equilibria exist. Price regulation Pareto improves on a competitive allocation.

A role for monetary policy when prices reveal information: an example

In an example, monetary policy can determine the information revealed by prices, and thus it can be effective, even desirable.

Money and Indeterminacy over an Infinite Horizon

Money provides liquidity services through a cash-in-advance constraint. The exchange of commodities and assets extends over an infinite horizon under uncertainty and complete asset market. Monetary policy sets the path of rates of interest and accommodates the demand for balances. Competitive equilibria exist. But, for a fixed path of rates of interest, there is a non-trivial multiplicity of equilibrium paths of prices of commodities. Determinacy requires that, subject to no-artibrage and in addition to rates of interest, the prices of state-contingent revenues be somehow determined.

Frequency of Trade and the Determinancy of Equilibrium Paths: Logarithmic Economies of Overlapping Generations Under Certainty

Equilibrium paths in economies of overlapping generations depend on the frequency of trade. In a standard example, determinacy obtains as the frequency of trades tends to infinity or trade occurs in continuous time. If time extends infinitely into the infinite past as well as into the infinite future, in continuous time, all non-stationary equilibrium paths of prices are time-shifts of a single path; in addition, there are two stationary solutions; in discrete time, there is a one dimensional family of non-stationary solutions, up to time-shift, but the indeterminacy vanishes as the number of periods in the frequency of trade tends to infinity. If, alternatively, time has a finite starting point, in discrete time the degree of indeterminacy increases with the frequency of trade, and, in continuous time, it is infinite; however, these are families of exponentially decreasing oscillations that, as time tends to infinity, all get damped, and asymptotic behavior is that of the economy that originates in the infinite past. This is different from the effect of increases in the life span of individuals.