Sunspots (economics)

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In economics, sunspots (sometimes a sunspot) usually refers to an extrinsic random variable, that is, a random variable that does not directly affect economic fundamentals (endowments, preferences, and and technology). “Sunspots” can also refer to the related concept of extrinsic uncertainty, economic uncertainty that does not come from variations in economic fundamentals.

Sunspots have been used in economic models in a number of subfields of economics, including asset pricing, bank runs, business cycles, economic growth, and monetary policy.

David Cass and Karl Shell, inventors of the concept of sunspot equilibrium, coined the term "sunspots" in the 1970s. The name is a reference to William Stanley Jevons who in the 19th century attempted to correlate business cycle patterns with sunspot counts (on the actual sun).

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