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

This paper considers the set of equilibria of two-period, sunspot economies with S purely extrinsic states of nature in the second period and I 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. If S>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 dimension S-I. Such a manifold contains at least one nonsunspot equilibrium (and at most a finite number of such equilibria). © 1992 Springer-Verlag.