Do Sunspots Matter?

@article{Cass1983DoSM,
  title={Do Sunspots Matter?},
  author={D. Cass and Karl Shell},
  journal={Journal of Political Economy},
  year={1983},
  volume={91},
  pages={193 - 227}
}
Can extrinsic uncertainty ("animal spirits," "market psychology," "sunspots,"...) play a significant role in rational expectations equilibrium models? We establish that extrinsic uncertainty cannot matter in the static Arrow-Debreu economy with complete markets. But we also establish that extrinsic uncertainty can matter in the overlapping-generations economy with complete markets but where market participation is limited to those consumers alive when the markets are open. Equilibrium… Expand

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