Sunspot Equilibria in a Production Economy: Do Rational Animal Spirits Cause Overproduction?

We study a standard two period economy with one nominal bond and one \u85rm. The rm \u85nances the input with the nominal bond in the \u85rst period, and its pro\u85ts are distributed to the shareholders in the second period. We show that in the neigh-borhood of each e ¢ cient equilibrium, a sunspot equilibrium also exists. It is shown that the equilibrium interest rate is lower than the e ¢ cient level, and that there is over production in the sunspot equilibrium, under some conditions. However, there is no sunspot equilibrium if the pro\u85t share of the \u85rm can be traded as well as the bond. (JEL classi\u85cation numbers: D52, D53, D61) Contact information of the author