Endogenous Business Cycles in OLG Economies with Multiple Consumption Goods

Carine Nourry and Alain Venditti

No 1439, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: We consider an OLG economy with two consumption goods. There are two sectors that produce a pure consumption good and a mixed good which can be either consumed or used as capital. We prove that the existence of Pareto optimal expectations-driven fluctuations is compatible with standard sectoral technologies if the share of the pure consumption good is low enough. Following Reichlin's (1986, Journal of Economic Theory, 40, 89-102) influential conclusion, this result suggests that some fiscal policy rules can prevent the existence of business-cycle fluctuations in the economy by driving it to the optimal steady state as soon as it is announced.

Keywords: Two-sector OLG model; multiple consumption goods; dynamic efficiency; Endogenous fluctuations; local indeterminacy (search for similar items in EconPapers)
JEL-codes: C62 E32 O41 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2014-06, Revised 2014-06
New Economics Papers: this item is included in nep-dge, nep-gro, nep-mac and nep-opm
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Related works:
Working Paper: Endogenous Business Cycles in OLG Economies with Multiple Consumption Goods (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:1439

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