Chapter 32 Sunspot equilibria in sequential markets models

Equilibrium with rational expectations is a central construct of modern economic theory. The chapter studies surveys, which are primarily aimed at assessing the properties and relevance of this construct in a general equilibrium framework; in particular, they are related to the issue of multiplicity of rational expectation equilibria. The viewpoint discussed in the chapter is associated with the so-called concept of sunspot equilibrium. It focuses on aspects of general equilibrium with rational expectations that have been given a central role in recent literature. It presents the problem of sunspot equilibria in the broader perspective. It also discusses an example of sunspot equilibrium and a simple economic systemnamely, a sequential economy with infinite horizon and time independent structure. Furthermore, this economy is one step forward looking and has no predetermined variable.