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Welfare Gains and Losses in Sunspot Equilibria

Atsushi Kajii

No 624, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We study a standard two period exchange economy with one nominal asset. As is well known there is a continuum of sunspot equilibria around each efficient equilibrium. A sunspot equilibrium is inefficient but some household may gain in sunspot equilibria relative to the efficient equilibrium. We show that a household's equilibrium utility level is either locally maximized or locally minimized at the efficient equilibrium, and derive a condition which identifies whether or not a household's utility is locally minimized or maximized.

Pages: 21pages
Date: 2006-10
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Journal Article: WELFARE GAINS AND LOSSES IN SUNSPOT EQUILIBRIA* (2007) Downloads
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