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Paper #844

Stable sunspot equilibria in a cash-in-advance economy
George W. Evans, Seppo Honkapohja i Ramon Marimon
Febrer 2004
We analyze a monetary model with flexible labor supply, cash-inadvance constraints and seigniorage-financed government deficits. If the intertemporal elasticity of substitution of labor is greater than one, there are two steady states, one determinate and the other indeterminate. If the elasticity is less than one, there is a unique steady state, which can be indeterminate. Only in the latter case do there exist sunspot equilibria that are stable under adaptive learning. A sufficient reduction in government purchases can in many cases eliminate the sunspot equilibria while raising consumption/labor taxes even enough to balance the budget may fail to achieve determinacy.
Paraules clau:
Indeterminacy, learnability, expectational stability, endogenous fluctuations, seigniorage
Codis JEL:
C62, D83, D84, E31, E32
Àrea de Recerca:
Macroeconomia i Economia Internacional

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