Stability and sunspots in endogenous growth models

PIRISINU, ALESSANDRO

2018-07-13

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Abstract

This thesis is about the concept of Sunspot Equilibria. In the first part, an historical evolution is proposed through the studies of the major researchers on the topic: from the forerunners (Samuelson, and Azariadis, in primis), to Cass and Shell, the founders of the study of sunspot as it is considered today, up to the researchers that expanded the concept adapting it to today’s interpretation (Peck and Farmer, among others). The second and third parts describe the concept of sunspot in a particular class of endogenous growth two-sector-models associated to forms of market imperfections (externalities), pointing out the mechanism that leads to the existence of sunspots and Hopf bifurctions. What emerges is that the concept of sunspot can be understood as a sort of microfoundation of the macroeconomy: sunspots are a microeconomic way to show that there are macroeconomic equilibria of underemployment. Therefore, there is a space for the State’s intervention in the economy which, eliminating restrictions to market participation and other limiting conditions, allows to move from Pareto-optimal situations in a dynamic sense to Pareto – optimal situations in the traditional sense. This aspect can also be seen from the point of view recalled in the models presented: the possibility of Hopf bifurcations shows there is a non-negligible possibility for the system to be taken out from a low-consumption, low-production-equilibrium, pushing the economy toward higher levels of consumption, production, employment.