On stabilization policy in sunspot-driven oligopolistic economies
Rodolphe Dos Santos Ferreira () and
Frédéric Dufourt ()
Working Papers from HAL
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)
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Working Paper: On Stabilization Policy in Sunspot-Driven Oligopolistic Economies (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-00789233
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