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A projected dynamical systems model of general financial equilibrium with stability analysis. (English) Zbl 0858.90020

Summary: We present a dynamic model of general financial equilibrium. The model assumes utility-maximizing sectors in the economy that take the prices of the financial instruments as given. The economy, in turn, determines prices of the instruments that balance the supplies and demands. The financial adjustment process is shown to satisfy a projected dynamical system. This methodology is then used to establish, under certain conditions on the utility functions, both the stability and the asymptotical stability of the equilibrium asset, liability, and price pattern. This approach unveils a dynamic approach to competitive equilibrium problems that have, heretofore, been studied, principally, in the static framework of finite-dimensional variational inequality theory.

MSC:

91B62 Economic growth models
91B50 General equilibrium theory
91B52 Special types of economic equilibria
91G80 Financial applications of other theories
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