Stabilizing competitive business cycles (Q1083018)

This article continues recent attempts to establish and apply a theory of the business cycle in a strictly competitive framework where all markets clear. The case of perfect foresight is analyzed first and (in the usual way) by means of the traders' offer curve, which - if it displays a significant jump - can lead to complicated patterns of behaviour of intertemporal equilibrium sequences. The analysis is then extended to stationary Markov ''sunspot'' equilibria. The existence and properties of these equilibria are investigated by means of new, constructive methods. Stabilization policies and their effect with regard to the asymptotic stability of the model are discussed for both cases in the final section of this paper.