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

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  • Subir K. Chattopadhyay

    () (Departamento Fundamentos del AnÂlisis EconÕmico, Universidad de Alicante, E-03071 Alicante, SPAIN; e-mail: subir@vm.cpd.ua.es)

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, i.e., 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 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.
  • Handle: RePEc:spr:joecth:v:8:y:1996:i:1:p:123-135
    Note: Received: November 15, 1993; revised version October 19, 1994
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    Cited by:

    1. Carmen Bevi?Author-Email: Carmen.Bevia@uab.es & Luis C. Corch?n & Simon Wilkie, "undated". "Implementation of the Walrasian Correspondence by Market Games," UFAE and IAE Working Papers 493.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    2. José Alcalde, 1994. "Exchange-proofness or divorce-proofness? Stability in one-sided matching markets," Review of Economic Design, Springer;Society for Economic Design, vol. 1(1), pages 275-287, December.
    3. Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(05), pages 633-664, November.
    4. 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).
    5. 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.
    6. Luis Corchón & Andreu Mas-Colell, 1995. "A Note On Stability Of Best Reply And Gradient Systems With Applications To Imperfectly Competitive Models," Working Papers. Serie AD 1995-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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