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Welfare Gains and Losses in Sunspot Equilibria

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  • Atsushi Kajii

    ()
    (Institute of Economic Research, Kyoto University)

Abstract

We study a standard two period exchange economy with one nominal asset. As is well known there is a continuum of sunspot equilibria around each efficient equilibrium. A sunspot equilibrium is inefficient but some household may gain in sunspot equilibria relative to the efficient equilibrium. We show that a household's equilibrium utility level is either locally maximized or locally minimized at the efficient equilibrium, and derive a condition which identifies whether or not a household's utility is locally minimized or maximized.

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File URL: http://www.kier.kyoto-u.ac.jp/DP/DP624.pdf
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Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 624.

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Length: 21pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:kyo:wpaper:624

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  1. Gottardi, Piero & Kajii, Atsushi, 1999. "The Structure of Sunspot Equilibria: The Role of Multiplicity," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(3), pages 713-32, July.
  2. Pietra, Tito, 1992. "The Structure of the Set of Sunspot Equilibria in Economies with Incomplete Financial Markets," Economic Theory, Springer, Springer, vol. 2(3), pages 321-40, July.
  3. Cass, David, 1992. "Sunspots and Incomplete Financial Markets: The General Case," Economic Theory, Springer, Springer, vol. 2(3), pages 341-58, July.
  4. Goenka, Aditya & Prechac, Christophe, 2006. "Stabilizing sunspots," Journal of Mathematical Economics, Elsevier, vol. 42(4-5), pages 544-555, August.
  5. Atsushi Kajii & Antonio Villanacci & Alessandro Citanna, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Economic Theory, Springer, Springer, vol. 11(3), pages 495-521.
  6. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 193-227, April.
  7. Suda, Shinichi & Tallon, Jean-Marc & Villanacci, Antonio, 1992. "Real Indeterminacy of Equilibria in a Sunspot Economy with Inside Money," Economic Theory, Springer, Springer, vol. 2(3), pages 309-19, July.
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Cited by:
  1. Atsushi Kajii, 2009. "Sunspot Equilibria In A Production Economy: Do Rational Animal Spirits Cause Overproduction?," The Japanese Economic Review, Japanese Economic Association, Japanese Economic Association, vol. 60(1), pages 35-54.

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