A Geometric Approach to Sunspot Equilibria
In this paper, we propose a geometric method for the analysis of first-order sunspot equilibra in a class of nonlinear dynamic economic models without predetermined variables. We show that such stochastic equilibria exist around a steady state whenever it is locally indeterminate. Moreover, under some assumptions, we prove the existence of sunspot equilibria persisting on a full dimensioned support close to the steady state even when local indeterminacy is only lower dimensional, (C) 2001 Academic Press.