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On stabilization policy in sunspot-driven oligopolistic economies

Rodolphe Dos Santos Ferreira () and Frédéric Dufourt ()

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Abstract: Economies with oligopolistic markets are prone to inefficient sunspot fluctuations triggered by autonomous changes in firms equilibrium conjectures. We show that a well designed taxation-subsidization scheme can eliminate these fluctuations by coordinating firms in each sector on a single efficient equilibrium. At the macroeconomic level, implementing this stabilization policy leads to significant welfare gains, attributable to a quantitatively dominant "efficient stabilization effect". This effect, while important, is typically ignored in the traditional computations of the welfare costs of aggregate fluctuations (e.g., Lucas, 2003).

Keywords: Oligopolistic competition; Business cycles; Stabilization policy; Indeterminacy; Sunspot equilibria; Oligopolistic competition. (search for similar items in EconPapers)
Date: 2013-02-17
New Economics Papers: this item is included in nep-cwa and nep-mac
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