Endogenous credit constraints: the role of informational non-uniqueness

Publications: Working paper


We point out that the equilibrium definition applied by Miao and Wang in their model of stock price bubbles involves an implicit assumption about the formulation of an endogenous credit constraint. By dropping this assumption, one can construct infinitely many additional equilibria for the Miao-Wang economy, all of which exhibit stock price bubbles. The underlying reason for this result is informational non-uniqueness, a phenomenon known from the literature on dynamic games. Neither the original equilibria discussed by Miao and Wang nor the additional ones which exist due to informational non-uniqueness are Markov-perfect. For this reason we propose a recursive equilibrium definition for the Miao-Wang economy and show how it can be used to construct Markov-perfect equilibria with stock price bubbles.
Original languageEnglish
Number of pages30
Publication statusPublished - Feb 2019

Publication series

SeriesVienna Economics Papers

Austrian Fields of Science 2012

  • 502047 Economic theory

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