Summary.
We study sunspot immunity in a dynamic monetary economy in which consumers are allowed to trade put and call option contracts on the general price level. We define the concept of strong sunspot immunity to characterize economies that have no sunspot equilibria regardless of the number of extrinsic states and their probabilities of occurrence. We show that a small number of option contracts can make an economy strongly sunspot immune. In addition, we demonstrate how asset re-trading opportunities, and the associated capital gains and losses, reduce the number of options needed for this result to obtain.
Similar content being viewed by others
Author information
Authors and Affiliations
Additional information
Received: August 13, 1996; revised version: January 20, 1997
Rights and permissions
About this article
Cite this article
Antinolfi, G., Keister, T. Options and sunspots in a simple monetary economy. Economic Theory 11, 295–315 (1998). https://doi.org/10.1007/s001990050189
Issue Date:
DOI: https://doi.org/10.1007/s001990050189