Monetary Equilibria and Knightian Uncertainty

This article considers a pure-endowment stationary stochastic overlapping generations economy, in which agents have maximin expected utility preferences. Two main results are obtained. First, we show that multiple stationary monetary equilibria exist, and hence real as well as price indeterminacy arises under the assumption that aggregate shock exists. Second, we show that each of these stationary monetary equilibria is conditionally Pareto optimal; i.e., no other stationary allocations strictly Pareto dominate the equilibrium allocations.