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In this paper we consider a two-period general equilibrium model with uncertainty and real assets as financial instruments. The novelty of the analysis is that real assets are the stock of neoclassical firms, so that both returns and yields depend on anticipated spot goods prices (and, of course, the yield matrix may change rank with prices). Assuming that financial markets are potentially complete, we establish generic existence of financial equilibrium and prove that there exists a dense set of economies such that financial equilibria are efficient. Download Paper
We consider a risk-neutral, price-taking and value-maximizing firm under demand uncertainty. The firm chooses optimal investment strategies; the investment is irreversible. For a wide family of non-Gaussian processes, we derive an explicit formula for the boundary of the inaction region by using the Wiener-Hopf factorization method. As an application of the method, we suggest a Marshallian-like form for the investment rule. It is applicable when the price can move in both directions, and uses the infimum process of the price instead of the price process itself. We also write down an analytic formula for the expected level of the capital stock in terms of the infimum and supermum processes. Both results are new even for the Gaussian case. Download Paper