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Stable Sunspot Equilibira in a Cash-in-Advance Economy

George Evans (), Seppo Honkapohja () and Ramon Marimon

University of Oregon Economics Department Working Papers from University of Oregon Economics Department

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: C63 D83 D84 E31 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2002-10-25, Revised 2005-11-15
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Related works:
Journal Article: Stable Sunspot Equilibria in a Cash-in-Advance Economy (2007) Downloads
Working Paper: Stable sunspot equilibria in a cash-in-advance economy (2005) Downloads
Working Paper: Stable Sunspot Equilibria in a Cash-in-Advance Economy (2003) Downloads
Working Paper: Stable Sunspot Equilibria in a Cash-in-Advance Economy (2001) Downloads
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