Sunspot Equilibria In A Production Economy: Do Rational Animal Spirits Cause Overproduction?
We study a standard two period economy with one nominal bond and one firm. The input of the firm is done in the first period and financed with the nominal bond, and its profits are distributed to the shareholders in the second period. We show that a sunspot equilibrium exists around each efficient equilibrium. The interest rate is lower than optimal and there is over production in sunspot equilibria, under some conditions. But a sunspot equilibrium does not exist if the profit share can be traded as well as the bond.
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Volume (Year): 60 (2009)
Issue (Month): 1 ()
Pages: 35-54
| Handle: | RePEc:bla:jecrev:v:60:y:2009:i:1:p:35-54 |
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References listed on IDEAS
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- Mas-Colell,Andreu, 1990.
"The Theory of General Economic Equilibrium,"
Cambridge Books,
Cambridge University Press, number 9780521388702.
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- Piero Gottardi & Atsushi Kajii, 1999. "The Structure of Sunspot Equilibria: The Role of Multiplicity," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 713-732.
- Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
- Goenka, Aditya & Prechac, Christophe, 2006. "Stabilizing sunspots," Journal of Mathematical Economics, Elsevier, vol. 42(4-5), pages 544-555, August. Full references (including those not matched with items on IDEAS)
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