Publication Type
Working Paper
Version
publishedVersion
Publication Date
3-2023
Abstract
We study a multiperiod model with a nominal bond that matures in one period and identify the set of e¢ cient allocations that can be sustained as Walrasian equilibria with heterogeneous forecasts. We next add a long maturity bond, which under perfect foresight would be a redundant asset, and show that it fundamentally expands the set of e¢ cient allocations that can be sustained as Walrasian equilibria. Indeed all wealth transfers compatible with e¢ ciency can arise endogenously. The key feature driving this conclusion are forecasting errors, which lead to ex post arbitrage opportunities that induce these income transfers.
Discipline
Economic Theory
Research Areas
Economic Theory
First Page
1
Last Page
29
Publisher
Central Bank Communication, Working Papers No. 046
City or Country
Tokyo
Citation
CHATTERJI, Shurojit and KAJII, Atsushi.
On the welfare role of redundant assets with heterogenous forecasts. (2023). 1-29.
Available at: https://ink.library.smu.edu.sg/soe_research/2716
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.