Sunspot Fluctuations around a Steady State: The Case of Multidimensional, One-Step Forward Looking Economic Models

Pierre Chiappori, Pierre Geoffard and Roger Guesnerie ()

Econometrica, 1992, vol. 60, issue 5, 1097-126

Abstract: The paper investigates the existence of stationary sunspot equilibria (SSE) in the vicinity of a steady state in a general, one-step forward looking economic model of dimension n. It is shown that, whenever the steady state is indeterminate, for the associated deterministic dynamics--i.e., there exists a continuum of perfect foresight paths converging to the steady state--then there exists a continuum of SSE of finite order in any neighborhood of the steady state. The proof relies upon bifurcation theory; it provides a characterization of the random processes for which SSE may appear and a description of the location of the support of the SSE close to the bifurcation. The results apply in particular to linear models. Copyright 1992 by The Econometric Society.

Date: 1992
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Working Paper: Sunspot Fluctuations around a Steady State: The Case of Multidimensional One-Step forward Looking Economic Models (1990)
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