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On the Structure of Ramsey Equilibrium: Cycles, Indeterminacy, and Sunspots

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  • Sorger, Gerhard

Abstract

We consider a one-sector neoclassical capital accumulation model under borrowing constraints with infinitely lived heterogeneous households. Under the standard assumptions of strictly concave and time-additive utility functionals and a strictly concave production function, we show that perfect foresight equilibria can be non-unique, even locally non-unique (indeterminate), and periodic of arbitrary long period rho. Moreover, we prove that there can exist non-trivial rational expectations (sunspot) equilibria when the agent's expectations about future factor prices depend on extrinsic uncertainty.

Suggested Citation

  • Sorger, Gerhard, 1994. "On the Structure of Ramsey Equilibrium: Cycles, Indeterminacy, and Sunspots," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(5), pages 745-764, August.
  • Handle: RePEc:spr:joecth:v:4:y:1994:i:5:p:745-64
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