Debt constraints and equilibrium in infinite horizon economies with incomplete markets

This paper defines a notion of an equilibrium and a pseudo-equilibrium for infinite horizon economies with incomplete asset markets. This definition generalizes the usual ones for finite horizon economies with incomplete markets and for infinite horizon economies with complete markets. We establish the existence of a pseudo-equilibrium when assets are short-lived and denominated in general commodity bundles; we obtain a true equilibrium when assets are denominated solely in a single numeraire commodity, or in units of account. It seems to us that the notion of an equilibrium we define is a natural and compelling one; as evidence, we show that our notion actually coincides with several other - apparently quite distinct - notions of an equilibrium.