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ENDOGENOUS BUSINESS CYCLES IN OVERLAPPING-GENERATIONS ECONOMIES WITH MULTIPLE CONSUMPTION GOODS

Published online by Cambridge University Press:  30 December 2011

Carine Nourry  and
Alain Venditti
Carine Nourry
Affiliation:
IUF Université de la Méditerranée and GREQAM
Alain Venditti*
Affiliation:
CNRS–GREQAM and EDHEC
*
Address correspondence to: Alain Venditti, GREQAM, 2 rue de Charité, 13002 Marseille, France; e-mail: [email protected].
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Abstract

We consider an overlapping-generations economy with two consumption goods. There are two sectors that produce a pure consumption good and a mixed good that can be either consumed or used as capital. We prove that the existence of Pareto-optimal expectations-driven fluctuations is compatible with standard sectoral technologies if the share of the pure consumption good is low enough. Following Reichlin's [Journal of Economic Theory 40 (1986), 89–102] influential conclusion, this result suggests that some fiscal policy rules can prevent business-cycle fluctuations in the economy by driving it to the optimal steady state as soon as they are announced.

Keywords

Two-Sector OLG ModelMultiple Consumption GoodsDynamic EfficiencyEndogenous FluctuationsLocal Indeterminacy
Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Supplement S1: Nonlinear Dynamics in Equilibrium Models , April 2012 , pp. 86 - 102
Copyright
Copyright © Cambridge University Press 2011

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References

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