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Are Sunspots Necessary?

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  • Spear, Stephen E

Abstract

In this paper, the author shows the existence of stationary rational expectations equilibria in a simple, two-island, overlapping-generations model of the type first considered by Robert E. Lucas, Jr., in which all uncertainty is endogenous. The result is obtained by first constructing "sunspot" equilibria on each island separately and then using the equilibrium pricing equations to eliminate the sunspot variable. In the resulting equilibrium, each island's prices serve as the sunspot for the other island. The constructed equilibrium is nontrivially stochastic. Copyright 1989 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 97 (1989)
Issue (Month): 4 (August)
Pages: 965-73

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Handle: RePEc:ucp:jpolec:v:97:y:1989:i:4:p:965-73

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Web page: http://www.journals.uchicago.edu/JPE/

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Cited by:
  1. Garratt, Rod & Keister, Todd & Qin, Cheng-Zhong & Shell, Karl, 2002. "Equilibrium Prices When the Sunspot Variable Is Continuous," Journal of Economic Theory, Elsevier, vol. 107(1), pages 11-38, November.
  2. Jackson Matthew O., 1994. "A Proof of the Existence of Speculative Equilibria," Journal of Economic Theory, Elsevier, vol. 64(1), pages 221-233, October.
  3. Jess Benhabib & Pengfei Wang & Yi Wen, 2013. "Uncertainty and sentiment-driven equilibria," Working Papers 2013-011, Federal Reserve Bank of St. Louis.
  4. Tood Keister, 2005. "Expectations and Contagion in Self-Fulfilling Currency Attacks," Working Papers 0501, Centro de Investigacion Economica, ITAM.
  5. Orrego, Fabrizio, 2011. "Habit formation and sunspots in overlapping generations models," Working Papers 2011-013, Banco Central de Reserva del PerĂº.

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