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Author: | Chattopadhyay, S. |
Title: | Pareto optimal improvements for sunspots: the golden rule as a target for stabilization |
Journal: | Economic Theory
1996 : JUN, VOL. 8:1, p. 123-136 |
Index terms: | THEORIES ECONOMICS STABILIZATION |
Language: | eng |
Abstract: | The stationary sunspot equilibria of a simple one good OLG economy are considered. These equilibria are known to be suboptimal. The authors 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, i.e., the monetary steady state acts as a target. The authors also show that, in general, periodic allocations cannot be used as targets. The result is interpreted as a welfare theoretical justification for stabilization policy. |
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