Global sunspots in OLG models

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmacro.2005.10.003 Byline: Gianluca Gazzola (a), Alfredo Medio (b) Keywords: Stochastic stability; Overlapping generations; Sunspots Abstract: This paper discusses sunspots equilibria in a context that is general in the sense that: (i) the evolution of the system takes place in a general state space (i.e., a space which is not necessarily finite or even countable); and (ii) the orbits of the unperturbed, deterministic component of the system converge to subsets of the state space which can be more complicated than a stationary state or a periodic orbit, i.e., they can be aperiodic or chaotic. This problem is represented mathematically as a system of stochastic difference equations the invariant probability distributions of which correspond to stationary sunspots equilibria. The conditions for stochastic stability are recalled and the theoretical results are applied to a model of overlapping generations with individuals living three periods. A computational analysis of this model is provided, covering the basic different cases suggested by the theory. Author Affiliation: (a) Research Group on Nonlinear Dynamical Systems, Department of Statistical Sciences, University of Udine, Udine, Italy (b) Department of Statistical Sciences, University of Udine, Via Treppo 18, 33100 Udine, Italy Article History: Received 5 October 2005; Accepted 30 October 2005