Abstract
We develop simple geometrical methods to study local indeterminacy, bifurcations, and stochastic (sunspot) equilibria near a steady state, in nonlinear two dimensional economic models. We present in particular a simple, constructive, geometrical characterization of the support of stochastic sunspot equilibria, not only arbitrarily near a steady state, but also along local bifurcations. These methods are applied to a simple aggregative model to study in particular the influence of capital–labor substitution and of the aggregate labor supply wage elasticity on the occurrence of competitive endogenous deterministic or stochastic fluctuations.Journal of Economic LiteratureClassification Numbers: E32, C62.
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