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A two-person dynamic equilibrium under ambiguity

โœ Scribed by Larry G. Epstein; Jianjun Miao


Publisher
Elsevier Science
Year
2003
Tongue
English
Weight
325 KB
Volume
27
Category
Article
ISSN
0165-1889

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โœฆ Synopsis


This paper describes a pure-exchange, continuous-time economy with two heterogeneous agents and complete markets. A novel feature of the economy is that agents perceive some security returns as ambiguous in the sense often attributed to Frank Knight. The equilibrium is described completely in closed-form. After identifying agents as countries, the model is applied to address the consumption home bias and equity home-bias puzzles.


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