Information, stabilization, and welfare: the case of sunspots

• Autores: Subir K. Chattopadhyay
• Localización: Working papers = Documentos de trabajo: Serie AD, Nº. 2, 1999
• Idioma: inglés
• Enlaces
  • Texto completo (pdf)
• Resumen

  • The stationary sunspot equilibria of a simple OLG economy with heterogeneous agents are considered. 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 in such an environment. The main result is that knowledge of (a) the sunspot equilibrium net trades, (b) weak interval type information on two parameters, and (c) weak set type information on the location of some optimal stationary allocation, is sufficient to induce a competitive location of some optimal stationary allocation, is sufficient to induce a competitive equilibrium which is a pareto optimal Pareto improvement over the sunspot allocation which has the further property of reaching a Pareto optimal stationary allocation in finite time. The result are interpreted as demonstrating that in a simple model with a sunspot environment, policy is very effective and that welfare economic considerations lead to stabilization.