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Sunspots, Money and Capital

Author

Listed:
  • Gaetano Bloise

    (CORE, Université Catholique de Louvain)

  • Stefano Bosi

    (EPEE, Université d’Evry-Val d’Essonne)

  • Francesco Magris

    (DISES, Università di Trieste, and EPEE, Université d’Evry)

Abstract

In this paper we characterize the indeterminacy of equilibria in a cash-in-advance economy with liquidity constraints and capital accumulation. In particular we show that, even though no extrinsic uncertainty a¤ects fundamentals, rational expectations equilibria exist in which prices and quantities exhibit repetitive and persistent ‡uctuations. A method of general applicability is proposed to construct sunspot equilibria in discrete-time three-dimensional models with one predetermined variable and lower dimensional stable manifold.

Suggested Citation

  • Gaetano Bloise & Stefano Bosi & Francesco Magris, 1999. "Sunspots, Money and Capital," Documents de recherche 99-07, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    • Handle: RePEc:eve:wpaper:99-07
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    References listed on IDEAS

    as
    1. Chiappori, Pierre Andre & Guesnerie, Roger, 1991. "Sunspot equilibria in sequential markets models," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 32, pages 1683-1762, Elsevier.
    2. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
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