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Intrinsic Uncertainty and Extraneous Uncertainty: Sunspot Equilibria and Periodic Cycles under Fundamental Shocks


  • Shin-ichi Fukuda


This paper investigates how some intrinsic uncertainty will affect the existence of sunspot equilibria and deterministic cycles in a simple overlapping generations model. In the model, there exists an intrinsic uncertainty under which each individual independently has a small probability of losing comsumption goods. Because of the law of large numbers, this intrinsic unvertainty causes no fundamental macroeconomic fluctuation. However, under some parameters, it can change the dynamic stability. Thus, the model may have both stationary sunspot equilibria and deterministic cycles even if the degree of relative risk aversion is small. In particular, these sunspot equilibria and deterministic cycles can exist even if the probability of loss is negligible.

Suggested Citation

  • Shin-ichi Fukuda, 1993. "Intrinsic Uncertainty and Extraneous Uncertainty: Sunspot Equilibria and Periodic Cycles under Fundamental Shocks," Discussion Paper Series a282, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:hituec:a282

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    References listed on IDEAS

    1. Takatoshi Ito & Yukinobu Kitamura, 1994. "Public Policies and Household Saving in Japan," NBER Chapters,in: Public Policies and Household Savings, pages 133-160 National Bureau of Economic Research, Inc.
    2. Hayashi, Fumio & Ando, Albert & Ferris, Richard, 1988. "Life cycle and bequest savings A study of Japanese and U.S. households based on data from the 1984 NSFIE and the 1983 survey of consumer finances," Journal of the Japanese and International Economies, Elsevier, vol. 2(4), pages 450-491, December.
    3. Hall, Robert E & Mishkin, Frederic S, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," Econometrica, Econometric Society, vol. 50(2), pages 461-481, March.
    4. Takayama, Noriyuki & Arita, Fumiko & Kitamura, Yukinobu, 1994. "Factors Contributing to the Wealth Increase of the Japanese Households," Economic Review, Hitotsubashi University, vol. 45(1), pages 16-30, January.
    5. Ando, Albert, et al, 1992. " Saving among Young Households. Evidence from Japan and Italy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(2), pages 233-250.
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General


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