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Pareto optimal improvements for sunspots: The golden rule as a target for stabilization

Author

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  • Subir Chattopadhyay

    (Universidad de Alicante)

Abstract

The stationary sunspot equilibria of a simple one good OLG econoMy are considered. These equilibria are known to be suboptimal. We show that, for any such equilibrium allocation, there always exists a Pareto optimal improvement which has the additional property of reaching the Golden Rule in finite time, Le., the monetary steady state acts as a target. We also show that, in general, periodic allocations cannot be used as targets. The result is interpreted as a welfare theoretical justification for stabilization policy.

Suggested Citation

  • Subir Chattopadhyay, 1994. "Pareto optimal improvements for sunspots: The golden rule as a target for stabilization," Working Papers. Serie AD 1994-19, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:1994-19
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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-1994-19.pdf
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    Cited by:

    1. Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(5), pages 633-664, November.
    2. Jean-François Mertens & Anna Rubinchik, 2013. "Equilibria in an overlapping generations model with transfer policies and exogenous growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(3), pages 537-595, November.

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