Regime-Switching Sunspot Equilibria in a One-Sector Growth Model with Aggregate Decreasing Returns and Small Externalities
This paper shows that regime-switching sunspot equilibria easily arise in a one-sector growth model with aggregate decreasing returns and arbitrarily small externalities. We construct a regime-switching sunspot equilibrium in the case where the utility function of consump-tion is linear. We also construct a stochastic optimal growth model whose optimal process is a regime-switching sunspot equilibrium of the original economy in the case where there is no capital externality. We illustrate our results with numerical examples.
Research Institute for Economics and Business Administration,
Rokkodai-cho, Nada-ku, Kobe