Frankel, David M; Burdzy, Krzysztof - In: The B.E. Journal of Theoretical Economics 5 (2005) 1
A popular theory of business cycles is that they are driven by animal spirits: shifts in expectations brought on by sunspots. A prominent example is Howitt and McAfee (AER, 1992). We show that this model has a unique equilibrium if there are payoff shocks of any size. This equilibrium still has...