Inter-temporal discounting and uniform impatience

The uniform impatience hypothesis, a joint requirement on endowments and preferences, was imposed in the literature to prove equilibrium existence in infinite horizon sequential economies. In this note, we characterize this assumption in terms of asymptotic properties on inter-temporal discount factors.Uniform impatience, inter-temporal discounting. JEL Codes: D50, D52.

Welfare-improving debt constraints

We show that in economies without liquidity frictions, but with incomplete financial markets, when agents are infinitely lived and uniformly impatient, money can still be essential (that is, have a positive price in equilibrium) if and only if each agent has binding debt constraints at some node of her life span. That is, contrary to what might be expected, in the absence of a very productive financial market, frictions induced by debt constraints create some room for improving efficiency, by allowing money to have a role in transferring wealth across dates and states of nature.Cashless economies, Binding debt constraints, Fundamental value of money.

Fiat money and the value of binding portfolio constraints

We establish necessary and sufficient conditions for the individual optimality of a consumption-portfolio plan in an infinite horizon economy where agents are uniformly impatient and fiat money is the only asset available for inter-temporal transfers of wealth. Next, we show that fiat money has a positive equilibrium price if and only if for some agent the zero short sale constraint is binding and has a positive shadow price (now or in the future). As there is always an agent that is long, it follows that marginal rates of inter-temporal substitution never coincide across agents. That is, monetary equilibria are never full Pareto efficient. We also give a counter-example illustrating the occurrence of monetary bubbles under incomplete markets in the absence of uniform impatience

Fiat money and the value of binding portfolio constraints

We establish necessary and sufficient conditions for the individual optimality of a consumption-portfolio plan in an infinite horizon economy where agents are uniformly impatient and fiat money is the only asset available for inter-temporal transfers of wealth. Next, we show that fiat money has a positive equilibrium price if and only if for some agent the zero short sale constraint is binding and has a positive shadow price (now or in the future). As there is always an agent that is long, it follows that marginal rates of inter-temporal substitution never coincide across agents. That is, monetary equilibria are never full Pareto efficient. We also give a counter-example illustrating the occurrence of monetary bubbles under incomplete markets in the absence of uniform impatience

Fiat money and the value of binding portfolio constraints

We establish necessary and sufficient conditions for the individual optimality of a consumption-portfolio plan in an infinite horizon economy where agents are uniformly impatient and fiat money is the only asset available for intertemporal transfers of wealth. Next, we show that fiat money has a positive equilibrium price if and only if for some agent the zero short sale constraint is binding and has a positive shadow price (now or in the future). As there is always an agent that is long, it follows that marginal rates of intertemporal substitution never coincide across agents. That is, monetary equilibria are never full Pareto efficient. We also give a counter-example illustrating the occurrence of monetary bubbles under incomplete markets in the absence of uniform impatience

Collateralized assets and asymmetric information

Introducing assets backed by physical collateral, we extend the [Cornet, B., De Boisdeffre, L., 2002. Arbitrage and price revelation with asymmetric information and incomplete markets. Journal of Mathematical Economics 38, 393–490.] model of asymmetric information to allow for default. We show that, independently of the financial-informational structure, equilibrium exists

Welfare-improving debt constraints WELFARE-IMPROVING DEBT CONSTRAINTS

Abstract. Under uniform impatience of preferences, assets in positive net supply are free of price bubbles for deflators that yield finite present values of wealth. However, this does not imply that equilibrium prices must coincide with present values of dividends. Indeed, if borrowing constraints become binding, asset prices must take into account the respective shadow prices. In this context, we analyze the widely studied case of an asset paying no dividends where loans are bounded by an explicit debt constraint. We prove that a positive asset price occurs at some node if and only debt constraints are binding at this node or at some future state of nature. Thus, binding debt constraints always induce frictions which create room for improving welfare by allowing money to have a role in transferring wealth across the event tree

Fiat money and the value of binding portfolio constraints

Binding portfolio constraints, Fundamental value of money, Asset pricing bubbles, D50, D53, E41, E44,

Collateralized assets and asymmetric information

Introducing assets backed by physical collateral, we extend the [Cornet, B., De Boisdeffre, L., 2002. Arbitrage and price revelation with asymmetric information and incomplete markets. Journal of Mathematical Economics 38, 393-490.] model of asymmetric information to allow for default. We show that, independently of the financial-informational structure, equilibrium exists.

Fiat money and the value of binding portfolio constraints.

It is well known that, under uniform impatience, positive net supply assets are free of bubbles for non-arbitrage kernel deflators that yield finite present values of wealth. However, this does not mean that prices cannot be above the series of deflated dividends for the deflators given by the agents' marginal rates of substitution, which also yield finite present values of wealth. In particular, binding no-short-sales constraints lead to positive prices of fiat money. Also, monetary equilibria are Pareto improvements but they are still inefficient.Binding debt constrains, Fundamental value of money, Asset pricing bubbles.