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Sunspots in a cash-in-advance model: A quantitative assessment

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  • Stockman, David R.

Abstract

Does consideration of sunspot equilibria in the cash-in-advance model help the model match key features in the US macroeconomic data? One can use the cash-in-advance model to generate predictions of macro time series via an equilibrium of the model. However, when restricted to minimum state variable stationary rational expectations equilibria, the model's predictions do not match the data well. Recent work by Woodford (1994) and Huo (1995) demonstrates that this model may exhibit a much larger class of equilibria including stationary and non-stationary sunspot equilibria. Does expanding the predictive content of the CIA model by considering this larger set of equilibria help the model match the US data? In this paper, the sunspot equilibria of Woodford (1994) and Huo (1995) are quantitatively explored to answer this question.
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  • Stockman, David R., 2007. "Sunspots in a cash-in-advance model: A quantitative assessment," Journal of Macroeconomics, Elsevier, vol. 29(1), pages 123-144, March.
    • Handle: RePEc:eee:jmacro:v:29:y:2007:i:1:p:123-144
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    1. Stockman, David R., 2007. "Sunspots in a cash-in-advance model: A quantitative assessment," Journal of Macroeconomics, Elsevier, vol. 29(1), pages 123-144, March.

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    More about this item

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

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