Abstract
We provide a computationally simple method of including and analyzing the effects of sunspot shocks in linear rational expectations models when the equilibrium is indeterminate. Under non uniqueness sunspots can affect model dynamics through endogenous forecast errors that do not completely adjust to fundamental shocks alone. We show that sunspot shocks can ire modeled as exogenous belief shocks which can be included in the set of fundament als. By means of a simple example we illustrate that the exact specification of the transmission mechanism of the belief shocks is irrelevant for the solution of the model.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
