Economics, Econometrics and Finance
3 years ago

Sunspot tales trigger extreme economic changes and persistent volatility clusters.

European Economic Review
Equilibrium indeterminacy and sunspot tales
Chetan Dave, Marco M. Sorge

Paper Summary

Dynamic indeterminacy in economic models can explain patterns in economic data. By allowing for multiple possible outcomes, models can show how small shocks can lead to big changes in the economy. This can help understand why inflation rates can vary widely and unpredictably over time.

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