Incomplete financial markets model with nominal assets: Variational approach

We deal with the analysis of the general equilibrium model with incomplete financial markets and nominal assets. We assume that there are 2 periods of time, say today and tomorrow. We define a consumption, portfolio holding, commodity and asset price vector as an equilibrium vector associated with a given economy if at those prices and economies households maximize utility under a budget constraints and markets clear. While the path breaking proofs of existence by Cass [6] and Werner [25] use a fixed point argument, we provide an independent existence proof in terms of variational inequalities (about the variational approach for the analysis of general equilibrium models see for example [9] and [10]). The analysis presented in this paper indicates that the variational inequality approach promises to be applicable in many specifications of the incomplete market model.