Observable restrictions of general equilibrium models with financial markets

This paper examines whether general equilibrium models of exchange economies with incomplete financial markets impose restrictions on prices of commodities and assets given the stochastic processes of dividends and aggregate endowments. We show that the assumption of time-separable expected utility implies restriction on the cross-section of asset prices as well as on spot commodity prices. However, a relaxation of the assumption of time separability will generally destroy these restriction. (C) 2003 Elsevier Science (USA). All rights reserved.