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Sunspot Equilibria and the Transfer Paradox

Author

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  • Hens, Thorsten

    () (Institute for Empirical Research in Economics, University of Zurich)

  • Pilgrim, Beate

    (Reuters AG, Frankfurt, Germany)

Abstract

We show that for international economies with two countries, in which agents have additively separable utility functions, the existence of sunspot equilibria is equivalent to the occurrence of the transfer paradox. This equivalence enables us to provide some new insights on the relation of the existence of sunspot equilibria and the multiplicity of spot market equilibria.

Suggested Citation

  • Hens, Thorsten & Pilgrim, Beate, 2004. "Sunspot Equilibria and the Transfer Paradox," Discussion Papers 2004/14, Norwegian School of Economics, Department of Business and Management Science.
  • Handle: RePEc:hhs:nhhfms:2004_014
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    File URL: http://hdl.handle.net/11250/163694
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    References listed on IDEAS

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    1. Forges, Francoise & Peck, James, 1995. "Correlated Equilibrium and Sunspot Equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 33-50.
    2. Hens, Thorsten & Mayer, Janós & Pilgrim, Beate, 2004. "Existence of Sunspot Equilibria and Uniqueness of Spot Market Equilibria: The Case of Intrinsically Complete Markets," Discussion Papers 2004/15, Norwegian School of Economics, Department of Business and Management Science.
    3. Hens, Thorsten & Laitenberger, Jorg & Loffler, Andreas, 2002. "Two remarks on the uniqueness of equilibria in the CAPM," Journal of Mathematical Economics, Elsevier, vol. 37(2), pages 123-132, April.
    4. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-392, May.
    5. Obstfeld, Maurice, 1996. "Models of currency crises with self-fulfilling features," European Economic Review, Elsevier, vol. 40(3-5), pages 1037-1047, April.
    6. Richard C. Barnett & Eric O'N. Fisher, 2002. "Comment on: "Do Sunspots Matter When Spot Market Equilibria Are Unique?"," Econometrica, Econometric Society, vol. 70(1), pages 393-396, January.
    7. Kehoe, Timothy J., 1991. "Computation and multiplicity of equilibria," Handbook of Mathematical Economics,in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 38, pages 2049-2144 Elsevier.
    8. Forges, Francoise & Peck, James, 1995. "Correlated Equilibrium and Sunspot Equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 33-50.
    9. O. Galor & H. M. Polemarchakis, 1987. "Intertemporal Equilibrium and the Transfer Paradox," Review of Economic Studies, Oxford University Press, pages 147-156.
    10. Aumann, Robert J., 1974. "Subjectivity and correlation in randomized strategies," Journal of Mathematical Economics, Elsevier, pages 67-96.
    11. Geanakoplos, John & Heal, Geoffrey, 1983. "A geometric explanation of the transfer paradox in a stable economy," Journal of Development Economics, Elsevier, pages 223-236.
    12. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics,in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier.
    13. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
    14. Lahiri, Sajal & Raimondos, Pascalis, 1995. "Welfare effects of aid under quantitative trade restrictions," Journal of International Economics, Elsevier, pages 297-315.
    15. Balasko, Yves, 1978. "The Transfer Problem and the Theory of Regular Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(3), pages 687-694, October.
    16. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
    17. Piero Gottardi & Atsushi Kajii, 1999. "The Structure of Sunspot Equilibria: The Role of Multiplicity," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 713-732.
    18. Dierker, Egbert, 1972. "Two Remarks on the Number of Equilibria of an Economy," Econometrica, Econometric Society, vol. 40(5), pages 951-953, September.
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    Cited by:

    1. Takeshi Momi, 2008. "Note on the non-existence of sunspot equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 503-513.
    2. Hoelle, Matthew, 2014. "The relation between sunspot effects and multiplicity in incomplete markets models with numeraire assets," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 119-127.

    More about this item

    Keywords

    Sunspot Equilibria; Transfer Paradox;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F30 - International Economics - - International Finance - - - General
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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