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Sunspot equilibria in a monetary economy with capital accumulation

  • BLOISE, Gaetano
  • MAGRIS, Francesco

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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File URL: http://alfresco.uclouvain.be/alfresco/download/attach/workspace/SpacesStore/bd286c48-2c6f-4abc-8728-a0a61282658b/coredp_2000_40.pdf
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2000040.

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Date of creation: 00 Aug 2000
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Handle: RePEc:cor:louvco:2000040
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  1. repec:cup:cbooks:9780521599740 is not listed on IDEAS
  2. 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 919-44, October.
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