The structure of the set of sunspot equilibria in economies with incomplete financial markets

Summary This paper considers the set of equilibria of two-period, sunspot economies withS purely extrinsic states of nature in the second period andI assets with linearly independent nominal payoffs. The span of the payoff matrix contains the vector [1, ... , 1] (i.e., inside money). The set of economies is described in terms of (sunspot-invariant) utility functions. IfS>I> 0, there is an open, dense set of economies such that, given a vector of no arbitrage asset prices, the set of equilibrium allocations contains a smooth manifold of dimensionS—I. Such a manifold contains at least one nonsunspot equilibrium (and at most a finite number of such equilibria).The paper was written while I was a visitor at C.O.R.E., Universitè Catholique de Louvain, with the financial support of a S.P.E.S. fellowship. I would like to thank D. Cass, H. Polemarchakis and P. Siconolfi for their helpful comments.