On the stability of nonsunspot equilibria
This paper analyzes the stability of the (Pareto efficient) nonsunspot equilibria as a function of the constraints faced by consumers in their ability to transfer wealth between states of nature. Equilibria that are stable for the certainty economy define nonsunspot equilibria that are stable in the following two polar cases: 1) All consumers are unconstrained; 2) All consumers are fully constrained. Furthermore, the stable certainty equilibria with small trade vectors define nonsunspot equilibria that are also stable independently of the constraint levels. Instability can develop only at intermediate constraint levels and for nonsunspot equilibria that feature sufficiently large trade vectors.
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- Spear, Stephen E., 1984. "Sufficient conditions for the existence of sunspot equilibria," Journal of Economic Theory, Elsevier, vol. 34(2), pages 360-370, December. Full references (including those not matched with items on IDEAS)
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