A note on an application of Arrow's theorem: sufficient conditions for Lucas' inflation and welfare

Rubens Cysne

No 397, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: Bellman's methods for dynamic optimization constitute the present mainstream in economics. However, some results associated with optimal controI can be particularly usefuI in certain problems. The purpose of this note is presenting such an example. The value function derived in Lucas' (2000) shopping-time economy in Infiation and Welfare need not be concave, leading this author to develop numerical analyses to determine if consumer utility is in fact maximized along the balanced path constructed from the first order conditions. We use Arrow's generalization of Mangasarian's results in optimal control theory and develop sufficient conditions for the problem. The analytical conclusions and the previous numerical results are compatible .

Date: 2000-08
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