Price stabilizing, Pareto improving policies
The paper studies a simple three period overlapping generations (OLG) model with incomplete markets and shows that stabilisation may be welfare improving. Volatility of endogenous variables is created by volatility in demand and supply. Thus, curbing price volatility must be done by limiting, directly or indirectly, the actions of agents. There, is then a trade-off which can be described as follows considering the individual agent's point of view: the ideal policy should limit the actions of all other agents in order to reduce the (price) volatility he is facing, but would allow him to act freely. This trade-off is exposed in this paper, and some conditions for when a stabilising policy is beneficial are provided motivated by an interest in understanding the relationship between rational beliefs and optimality. To this end, the OLG model is first described, discussed and interpreted. Then, the features of the monetary equilibria are studied and the policy results are provided. Finally, the case of contemporaneously diverse beliefs is briefly considered, where it turns out that implementation of Pareto improving reallocations is more involved.
- Overlapping generations and idiosyncratic risk: Can prices reveal the best policy?
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- Pareto Improving Price Regulation when the Asset Market is Incomplete
- Diverse beliefs and time variability of risk premia
- Does sunspot monetary policy matter?
- Floating exchange rates versus a monetary union under rational beliefs: the role of endogenous uncertainty
- scientific article; zbMATH DE number 4005929 (Why is no real title available?)
- scientific article; zbMATH DE number 1188943 (Why is no real title available?)
- scientific article; zbMATH DE number 1210329 (Why is no real title available?)
- Incomplete markets and volatility
- Informational diversity over time and optimality of monetary equilibria
- Monetary policy and heterogeneous expectations
- On rationally confident beliefs and rational overconfidence
- On the structure and diversity of rational beliefs
- Optimal Interest-Rate Smoothing
- Optimality, the interaction of spot and futures markets, and the nonneutrality of money in the Lucas model
- Rational belief structures and rational belief equilibria
- Self-fulfilling prophecies
- Stationary Markov Equilibria
- Stationary monetary equilibria in overlapping generations models with incomplete markets
- Stationary Pareto optimality of stochastic asset equilibria with overlapping generations
- Sunspot Rational Beliefs Structures, Equilibria and Excess Volatility
- Pareto optimal improvements for sunspots: The golden rule as a target for stabilization
- Welfare effects of short-sale constraints under heterogeneous beliefs
- Overlapping generations and idiosyncratic risk: Can prices reveal the best policy?
- The diversity of forecasts from macroeconomic models of the US economy
- Diverse beliefs and time variability of risk premia
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