Sunspot Fluctuations on the Growth Rates
This paper analyses an example of nonstationary stochastic endogenous fluctuations. It studies the existence of Markovian sunspot equilibria on the rates of growth in a linear one step forward looking economy with one predetermined variable. It is shown that asymptotically stable stochastic fluctuations arise in the neighborhood of a steady state, even if it is determinate in the perfect foresight dynamics. This leads to a generic expectations coordination failure. This problem is illustrated by an example of output fluctuations that makes less credible the coordination on the saddle-stable path converging to the determinate steady state.
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