Existence of adaptively stable sunspot equilibria near an indeterminate steady state

Existence of adaptively stable sunspot equilibria near an indeterminate steady state

We examine the nonlinear one-step forward-looking model, in which the current state is a function of the (subjective) expected value of a nonlinear function of the state next period. Stationary Markov Sunspot Equilibria (SSEs) are known to exist near an indeterminate steady state, i.e. when the derivative of the function at the steady state is bigger than one in absolute value. We show that the...

Stable near-rational sunspot equilibria

A new class of near-rational sunspot equilibria is identified in economies expressed as non-linear forward-looking models. The new equilibria are natural extensions of the usual sunspot equilibria associated to the linearized version of the economy, and are near-rational in that agents use the optimal linear forecasting model when forming expectations. A generic existence result is established....

An Alternative Approach to the Existence of Sunspot Equilibria

This paper offers an alternative approach to the existence of sunspot equilibria. The economy has a single perishable good and fiat money within an overlapping generations framework with two possible extraneous events. The analysis uses the dynamic adjustment of market prices during voluntary trade to establish paths of current spot prices whose limit points are rational expectations equilibria...

Existence of Sunspot Equilibria and Uniqueness of Spot Market Equilibria: The Case of Intrinsically Complete Markets

Stable Sunspot Equilibria in a Cash-in-Advance Economy∗

We analyze a monetary model with flexible labor supply, cash-inadvance constraints, and seigniorageand tax-financed government spending. If the intertemporal elasticity of substitution of labor is greater than one, both determinate and indeterminate steady states exist. If the elasticity is less than one, there is a unique steady state, which can be indeterminate. Only in the latter case do the...