Incomplete Financial Markets With Real Assets and Endogenous Credit Limits

Matthew Hoelle, Marina Pireddu and Antonio Villanacci

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: In this paper we analyze the effects of restricted participation in a two-period general equilibrium model with uncertainty in the second period and real assets. Similar to certain arrangements in the market for bank loans, household borrowing is restricted by a ousehold-specific wealth dependent upper bound on credit lines in all states of uncertainty in the second period. We first establish that, generically in the set of the economies, equilibria exist and are finite and regular. We then show that equilibria are generically suboptimal. Finally, we provide a robust example demonstrating that the equilibrium allocations can be Pareto improved through a tightening of the participation constraints.

Keywords: general equilibrium; restricted participation; financial markets; generic regularity; real assets; Pareto suboptimality (search for similar items in EconPapers)
JEL-codes: D50 D53 D61 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2012-06
New Economics Papers: this item is included in nep-ban and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:pur:prukra:1271

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