Sufficient conditions for the existence of sunspot equilibria (Q761334)

This paper reports on conditions on agents' preferences and endowments sufficient to guarantee the existence of sunspot equilibria in a simple overlapping generations model of pure exchange. Sunspot equilibria are those in which uncertainty extrinsic to the economy operates through expectations to yield a fulfilled expectations competitive equilibrium in which the extrinsic randomness has real effects on prices and allocations. The paper also provides necessary and sufficient conditions for these equilibria to have agents trading in a fixed stock of valued fiat money. The condition derived can be interpreted as requiring that intertemporal income effects appropriately dominate substitution effects.