Stable Sunspot Equilibria in a Cash-in-Advance Economy

George William Evans (), Seppo Mikko Sakari Honkapohja () and Ramon Marimon

No CESifo Working Paper No. 611, CESifo Working Paper Series from CESifo Group Munich

Abstract: We develop a monetary model with flexible supply of labor, cash in advance constraints and government spending financed by seignorage. This model has two regimes. One regime is conventional with two steady states. The other regime has a unique steady state which can be determinate or indeterminate. In the latter case there exist sunspot equilibria which are stable under adaptive learning, taking the form of noisy finite state Markov processes at resonant frequencies. For a range of parameter values, a sufficient reduction in government purchases will eliminate these equilibria.

Keywords: indeterminacy; learnability; expectational stability; endogenous fluctuations; seignorage (search for similar items in EconPapers)
JEL-codes: C62 D83 D84 E31 E32 (search for similar items in EconPapers)
Date: 2001
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Related works:
Working Paper: Stable Sunspot Equilibira in a Cash-in-Advance Economy (2005)
Working Paper: Stable Sunspot Equilibria in a Cash-in-Advance Economy (2005)
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