Abstract
The existence—under certain conditions—of sunspot equilibria in overlapping generations models is a well-known theoretical result, but a lot of research has still to be made to understand whether and how such equilibria may occur as a consequence of a dynamic process.
In this paper, we explore a model with individuals having simple utility functions and discover situations in which the dynamic processes of expectations and observed prices do not converge in spite of the existence of static equilibria. In other words, unfounded beliefs do still have a permanent influence on the real economy but induce erratic evolutions.
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Laffond, G., Lesourne, J. The genesis of expectations and of sunspot equilibria. J Evol Econ 2, 211–231 (1992). https://doi.org/10.1007/BF01202419
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DOI: https://doi.org/10.1007/BF01202419