Real indeterminacy of equilibria in a sunspot economy with inside money

Abstract

In a two-period sunspot economy with inside money andS possible realizations of the sunspot, we prove that, genetically in the space of utility functions, there areS — 1 degrees of real indeterminacy. This result generalizes the previously known result for sunspot models that, generically in endowments, there is at least one degree of real indeterminacy. The proof involves showing that generically the equilibrium allocation is different across states for some household. This property allows us to perturb the utility function in a simple way and to apply standard transversality arguments to prove our main theorem.