On the quantitative importance of market completeness

José Víctor Ríos-Rull

doi:10.1016/0304-3932(94)90029-9

On the quantitative importance of market completeness

José Víctor Ríos-Rull

Economics (Twin Cities)

Research output: Contribution to journal › Article › peer-review

34 Scopus citations

Abstract

This paper quantitatively compares allocations in calibrated large overlapping generations growth models that only differ in their market structures for insuring against aggregate risk. The findings are that the equilibrium behavior of aggregate variables is very similar across all market structures. There are only minor differences: the ratio of the volatility of aggregate consumption relative to that of investment is higher in complete market economies, due partly to the higher volatility of consumption of older people. It was also found that the risk premia in complete markets economies is basically zero. Therefore, we can conclude that we can for the most part abstract from the issue of whether there exist markets for aggregate risk.

Original language	English (US)
Pages (from-to)	463-496
Number of pages	34
Journal	Journal of Monetary Economics
Volume	34
Issue number	3
DOIs	https://doi.org/10.1016/0304-3932(94)90029-9
State	Published - Dec 1994

Bibliographical note

Funding Information:
Finn Kydland, Lee Ohanian. Bob Miller, Mike Trick. Albert0 Trejos. and Wouter den Haan gave very valuable comments which are gratefully acknowledged. Juan Pablo Chrdoba helped obtaining data from CES. The usual disclaimer applies. Support from NSF grant SES-9110991 is gratefully acknowledged.

Keywords

Dynamic general equilibrium
Market completeness
Risk premium

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10.1016/0304-3932(94)90029-9

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title = "On the quantitative importance of market completeness",

abstract = "This paper quantitatively compares allocations in calibrated large overlapping generations growth models that only differ in their market structures for insuring against aggregate risk. The findings are that the equilibrium behavior of aggregate variables is very similar across all market structures. There are only minor differences: the ratio of the volatility of aggregate consumption relative to that of investment is higher in complete market economies, due partly to the higher volatility of consumption of older people. It was also found that the risk premia in complete markets economies is basically zero. Therefore, we can conclude that we can for the most part abstract from the issue of whether there exist markets for aggregate risk.",

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N2 - This paper quantitatively compares allocations in calibrated large overlapping generations growth models that only differ in their market structures for insuring against aggregate risk. The findings are that the equilibrium behavior of aggregate variables is very similar across all market structures. There are only minor differences: the ratio of the volatility of aggregate consumption relative to that of investment is higher in complete market economies, due partly to the higher volatility of consumption of older people. It was also found that the risk premia in complete markets economies is basically zero. Therefore, we can conclude that we can for the most part abstract from the issue of whether there exist markets for aggregate risk.

AB - This paper quantitatively compares allocations in calibrated large overlapping generations growth models that only differ in their market structures for insuring against aggregate risk. The findings are that the equilibrium behavior of aggregate variables is very similar across all market structures. There are only minor differences: the ratio of the volatility of aggregate consumption relative to that of investment is higher in complete market economies, due partly to the higher volatility of consumption of older people. It was also found that the risk premia in complete markets economies is basically zero. Therefore, we can conclude that we can for the most part abstract from the issue of whether there exist markets for aggregate risk.

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KW - Market completeness

KW - Risk premium

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On the quantitative importance of market completeness

Abstract

Bibliographical note

Keywords

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