Sunspots, Money and Capital

Gaetano Bloise, Stefano Bosi () and Francesco Magris
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Stefano Bosi: EPEE, Université d’Evry-Val d’Essonne

No 99-07, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: In this paper we characterize the indeterminacy of equilibria in a cash-in-advance economy with liquidity constraints and capital accumulation. In particular we show that, even though no extrinsic uncertainty a¤ects fundamentals, rational expectations equilibria exist in which prices and quantities exhibit repetitive and persistent ‡uctuations. A method of general applicability is proposed to construct sunspot equilibria in discrete-time three-dimensional models with one predetermined variable and lower dimensional stable manifold.

Pages: 20 pages
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:eve:wpaper:99-07

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