Existence and uniqueness of stochastic equilibrium in a simple macro model

This paper demonstrates that even the simplest rational expectations macro model may be plagued by nonexistent or multiple equilibria. The reason for these problems is the postulated existence of risk-averse behavior on the part of labor suppliers and purchasers of durable commodities. This risk-averse behavior introduces the price forecast variance into the behavioral parameters of the model, thus leading to a simultaneous nonlinear system.