On the Specification of Asset Equilibrium in Macroeconomic Models: A Note

Abstract

This paper describes two alternative institutional setups for trading in assets and goods. One setup corresponds to a "beginning-of-period:" asset equilibrium specification; the other suggests both beginning and end-of-period equilibrium. It is shown that: (a) each model is internally consistent and the two models are consistent with each another; (b) the two models abide by Walra's law and in neither of them is there a need for a separate "balance-sheet constraint"; and (c) the continuous time version of the two models is well defined.