Sunspot equilibria in a monetary economy with capital accumulation
In this paper, we consider the determinacy of equilibrium prices, interest rate and income in an economy with liquidity constraints and capital accumulation. In particular, we show that, even though no extrinsic uncertainty effects fundamentals, under some conditions, rational expectations equilibria exist in which prices and quantities exhibit repetitive and persistent fluctuations. To prove the existence of such sunspot equilibria, we introduce a technique of general applicability to nonlinear macroeconomic models.
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- Svensson, Lars E O, 1985. "Money and Asset Prices in a Cash-in-Advance Economy," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 919-944, October.