Price Level Volatility: A Simple Model of Money Taxes and Sunspots

Joydeep Bhattacharya (), Mark G. Guzman () and Karl Shell ()

Staff General Research Papers from Iowa State University, Department of Economics

Abstract: We investigate sunspot equilibria in a static, one-commodity model with taxes and transfers denominated in money units. Volatility in this economy is purely monetary, since the only uncertainty is about the price level. We construct simple, robust examples of sunspot equilibria that are not mere randomizations over certainty equilibria. We also identify the source of these SSEs: equilibrium in the securities market is determined as if there were no restricted consumers and the unrestricted consumers face intrinsic uncertainty. Perfect securities markets eliminate allocation uncertainty, but they exacerbate price-level volatility.

JEL-codes: E3 (search for similar items in EconPapers)
Date: 2002-03-01

Published in Journal of Economic Theory, Vol. 81, No. 2, August 1998, pp 401-430.

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Journal Article: Price Level Volatility: A Simple Model of Money Taxes and Sunspots (1998)
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Persistent link: http://EconPapers.repec.org/RePEc:isu:genres:5167

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