Title: Noisy Rational Expectations Economies
Abstract: "We study equilibrium uniqueness in standard noisy rational expectations economies with asymmetric or differential information a la ` Grossman and Stiglitz (1980) and Hellwig (1980). The standard linear equilibrium of Grossman and Stiglitz (1980) is the unique equilibrium with a continuous price function, however, we also construct a tractable class of equilibria with discontinuous prices that have very different economic implications, including boom and recession regimes, jumps and crashes, “upward-sloping” demand curves, and price drifts. Discontinuous equilibria can generate higher volatility and illiquidity in recessions versus booms, and can feature higher investor welfare than the linear equilibrium. Discontinuous equilibria can be arbitrarily close to being fully-revealing, and also exist in the model of Hellwig (1980)."