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- Information, Stabilization, And Welfare: The Case Of Sunspots

Author

Listed:
  • Subir Chattopadhyay

    (Universidad de Alicante)

Abstract

The stationary sunspot equilibria of a simple OLG economy with heterogeneous agents areconsidered. These equilibria are known to be suboptimal. The focus of the paper is on the efficacy,based on welfare economic considerations and informational requirements, of government policy insuch an environment.The main result is that knowledge of (a) the sunspot equilibrium net trades, (b) weak interval typeinformation on two parameters, and (c) weak set type information on the location of some optimalstationary allocation, is sufficient to induce a competitive location of some optimal stationaryallocation, is sufficient to induce a competitive equilibrium which is a pareto optimal Paretoimprovement over the sunspot allocation which has the further property of reaching a Pareto optimalstationary allocation in finite time.The result are interpreted as demonstrating that in a simple model with a sunspot environment, policyis very effective and that welfare economic considerations lead to stabilization.

Suggested Citation

  • Subir Chattopadhyay, 1999. "- Information, Stabilization, And Welfare: The Case Of Sunspots," Working Papers. Serie AD 1999-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:1999-02
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-1999-02.pdf
    File Function: Fisrt version / Primera version, 1999
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    References listed on IDEAS

    as
    1. Peck, James, 1988. "On the existence of sunspot equilibria in an overlapping generations model," Journal of Economic Theory, Elsevier, vol. 44(1), pages 19-42, February.
    2. Subir K. Chattopadhyay, 1996. "Pareto optimal improvements for sunspots: The golden rule as a target for stabilization," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(1), pages 123-135.
    3. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
    4. Chattopadhyay, Subir, 1999. "Information, Stabilization, And Welfare: The Case Of Sunspots," Macroeconomic Dynamics, Cambridge University Press, vol. 3(4), pages 463-481, December.
    5. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Stationary Sunspots; Overlapping geneations; golden rule;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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