Local Sunspot Equilibria Reconsidered

28 Pages Posted: 25 Jan 2002

See all articles by Julio Davila

Julio Davila

University of Pennsylvania - Department of Economics; Center of National Scientific Research

Piero Gottardi

European University Institute - Department of Economics; Ca Foscari University of Venice - Dipartimento di Economia; CESifo (Center for Economic Studies and Ifo Institute)

Atsushi Kajii

Institute of Economic Research, Kyoto University; Singapore Management University

Date Written: November 2001

Abstract

This paper re-examines the conditions for the existence of local stationary sunspot equilibria (SSE) in the standard OLG model from a broader perspective than before. We say that local SSE exist around a steady state of a given OLG economy if, in any arbitrarily small neighborhood of the steady state, we can find a SSE of a "nearby" economy. We show that when the domain where "nearby" economies may lie is defined by agents' endowments and probabilities, the indeterminacy of the steady state remains both necessary and sufficient for the existence of local SSE. On the other hand, when the domain of economies is defined by by agents' preferences and probabilities, local SSE may exist even around determinate steady states.

We also show that if a slightly weaker notion of distance is used to identify "nearby' economies. SSE in the vicinity of a steady state equilibrium generically exist.

Suggested Citation

Davila, Julio and Gottardi, Piero and Kajii, Atsushi, Local Sunspot Equilibria Reconsidered (November 2001). PIER Working Paper No. 01-054, Available at SSRN: https://ssrn.com/abstract=297923 or http://dx.doi.org/10.2139/ssrn.297923

Julio Davila (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
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Center of National Scientific Research

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Piero Gottardi

European University Institute - Department of Economics ( email )

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Ca Foscari University of Venice - Dipartimento di Economia ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Atsushi Kajii

Institute of Economic Research, Kyoto University ( email )

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JAPAN

HOME PAGE: http://www.kier.kyoto-u.ac.jp/~kajii/

Singapore Management University ( email )

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Singapore

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