George W. Evans (University of Oregon) & Bruce McGough (University of Oregon)
Abstract
A new class of near-rational sunspot equilibria is identi-ed in economies ex- pressed as non-linear forward-looking models. The new equilibria are natural extensions of the usual sunspot equilibria associated to the linearized version of the economy, and are near-rational in that agents use the optimal linear forecasting model when forming expectations. A generic existence result is es- tablished. Stability under learning is also examined : the near-rational sunspot equilibria are found to be E-stable provided that the linearized model’s minimal state variable solution is E-stable.