IDEAS home Printed from
   My bibliography  Save this book chapter

Indeterminacy and sunspots in macroeconomics

In: Handbook of Macroeconomics


  • Benhabib, Jess
  • Farmer, Roger E.A.


This chapter gives an overview of the recent literature on indeterminacy and sunspots in macroeconomics. It discusses of some of the conceptual and the technical aspects of this literature, and provides a simple framework for illustrating the mechanisms of various dynamic equilibrium models that give rise to indeterminate equilibria. The role of external effects, monopolistic competition, and increasing returns in generating indeterminacy is explored for one-sector and multi-sector models of real business cycles and of economic growth. Indeterminacy is also studied in monetary models, as well as in models where monetary and fiscal policy are endogenous and determined by feedback rules. Particular attention is paid to the empirical plausibility of these models and their parametrizations in generating indeterminate equilibria. An overview of calibrated macroeconomic models with sunspot equilibria is given, and their successes and shortcomings in matching properties of data are assessed. Finally some issues regarding the selection of equilibria, the observable implications, and difficulties of forecasting that arise in such models are briefly addressed.

Suggested Citation

  • Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448, Elsevier.
  • Handle: RePEc:eee:macchp:1-06

    Download full text from publisher

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:macchp:1-06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.