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Welfare Gains And Losses In Sunspot Equilibria

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  • ATSUSHI KAJII

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 households 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.

Suggested Citation

  • Atsushi Kajii, 2007. "Welfare Gains And Losses In Sunspot Equilibria," The Japanese Economic Review, Japanese Economic Association, vol. 58(3), pages 329-344, September.
    • Handle: RePEc:bla:jecrev:v:58:y:2007:i:3:p:329-344
    DOI: 10.1111/j.1468-5876.2007.00418.x
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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, vol. 60(1), pages 35-54, March.
    2. Kang, Minwook, 2015. "Price-level volatility and welfare in incomplete markets with sunspots," Journal of Mathematical Economics, Elsevier, vol. 56(C), pages 58-66.
    3. repec:bla:jecrev:v:60:y:2009:i:1:p:33-34 is not listed on IDEAS

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