Local Sunspot Equilibria Reconsidered∗

In this paper we propose a generalization of the usual notion of local sunspot equilibria: we say local stationary sunspot equilibria exist around a steady state of an overlapping generations economy whenever stationary sunspot equilibria of arbitrarily close economies can be found within any neighborhood of the steady state. Unlike the usual notion, this generalized notion allows us to address the following identiÞcation problem: Can an analyst distinguish empirically small ßuctuations due to small shocks to the fundamentals from pure expectations-driven ßuctuations? We study the conditions under which local sunspot equilibria according to the proposed notion exist in overlapping generations economies, and show in particular that they may exist not only around indeterminate steady states but also around determinate ones