Pareto optimal improvements for sunspots: The golden rule as a target for stabilization

Subir Chattopadhyay
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Subir Chattopadhyay: Universidad de Alicante

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: The stationary sunspot equilibria of a simple one good OLG econoMy are considered. These equilibria are known to be suboptimal. We show that, for any such equilibrium allocation, there always exists a Pareto optimal improvement which has the additional property of reaching the Golden Rule in finite time, Le., the monetary steady state acts as a target. We also show that, in general, periodic allocations cannot be used as targets. The result is interpreted as a welfare theoretical justification for stabilization policy.

Keywords: Sunspot equilibria; Pareto optimal improvement; stabilization (search for similar items in EconPapers)
Pages: 26 pages
Date: 1994-12
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http://www.ivie.es/downloads/docs/wpasad/wpasad-1994-19.pdf Fisrt version / Primera version, 1994 (application/pdf)

Related works:
Journal Article: Pareto Optimal Improvements for Sunspots: The Golden Rule as a Target for Stabilization (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:1994-19

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