NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Alain Venditti

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers onlyInformation about this author at RePEc

Working Papers and Chapters

December 2012The Inefficient Markets Hypothesis: Why Financial Markets Do Not Work Well in the Real World
with Roger E.A. Farmer, Carine Nourry: w18647
Existing literature continues to be unable to offer a convincing explanation for the volatility of the stochastic discount factor in real world data. Our work provides such an explanation. We do not rely on frictions, market in completeness or transactions costs of any kind. Instead, we modify a simple stochastic representative agent model by allowing for birth and death and by allowing for heterogeneity in agents’ discount factors. We show that these two minor and realistic changes to the timeless Arrow-Debreu paradigm are sufficient to invalidate the implication that competitive financial markets efficiently allocate risk. Our work demonstrates that financial markets, by their very nature, cannot be Pareto efficient except by chance. Although individuals in our model are rational; mark...
June 2009Debt, Deficits and Finite Horizons: The Stochastic Case
with Roger Farmer, Carine Nourry: w15025
We introduce a solution technique for the study of discrete time stochastic models populated by long-lived agents. We introduce aggregate uncertainty and complete markets into a 'perpetual-youth' model of a kind first studied by Olivier Blanchard and we show that the pure-trade version of the model behaves much like the two-period overlapping generations model. Our methods are easily generalized to economies with production and they should prove useful to researchers who seek a tractable stochastic model in which fiscal policy has real effects on aggregate allocations.

Published: Farmer, Roger E.A. & Nourry, Carine & Venditti, Alain, 2011. "Debt, deficits and finite horizons: The stochastic case," Economics Letters, Elsevier, vol. 111(1), pages 47-49, April. citation courtesy of

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers onlyInformation about this author at RePEc

 
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