Sunspot equilibria in a monetary economy with capital accumulation

Gaetano Bloise and Francesco Magris

No 2000040, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In this paper, we consider the determinacy of equilibrium prices, interest rate and income in an economy with liquidity constraints and capital accumulation. In particular, we show that, even though no extrinsic uncertainty effects fundamentals, under some conditions, rational expectations equilibria exist in which prices and quantities exhibit repetitive and persistent fluctuations. To prove the existence of such sunspot equilibria, we introduce a technique of general applicability to nonlinear macroeconomic models.

Keywords: Money; capital accumulation; indeterminacy; sunspot equilibrium; invariant set. (search for similar items in EconPapers)
Date: 2000-08
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