Incomplete markets, allocative efficiency, and the information revealed by prices (Q1977400)

The paper deals with a two-period exchange economy with finitely many states and signals, multiple commodities and incomplete financial markets for nominal assets. In such economy the rational expectations equilibria are compared with different degrees of information revelation through prices. The main results show that there always exist equilibria where information is redundant in certain sense. Also the conditions are given under which for a generic set of economies parametrized by endowments and utilities, there exist open sets of equilibria for which allocative and informational efficiency are independent. Some implications of these results for monetary policy are formulated.