Self-fulfilling mechanisms and rational expectations in large markets

Codognato, G. and Ghosal, S. (2003) Self-fulfilling mechanisms and rational expectations in large markets. Journal of Mathematical Economics, 39(5-6), pp. 421-431. (doi:10.1016/S0304-4068(03)00014-4)

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Abstract

We extend an equivalence theorem proved by Forges and Minelli [Journal of Economic Theory 75 (1997) 388] to a market game, which does not require that a specific commodity is used as money. Under the assumption that the set of commodities is a net, we show an equivalence between the set of allocations generated by self-fulfilling mechanisms and the set of rational expectations equilibrium allocations. We construct an example, which shows that this equivalence breaks down when the net assumption fails to hold: in such cases, traders cannot obtain, through a self-fulfilling mechanism, the information revealed by rational expectations equilibrium prices.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Ghosal, Professor Sayantan
Authors: Codognato, G., and Ghosal, S.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Mathematical Economics
ISSN:0304-4068
ISSN (Online):1873-1538

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