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 and Werner 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 and ). The analysis presented in this paper indicates that the variational inequality approach promises to be applicable in many specifications of the incomplete market model.