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ENDOGENOUS BUSINESS CYCLES IN OVERLAPPING-GENERATIONS ECONOMIES WITH MULTIPLE CONSUMPTION GOODS
Published online by Cambridge University Press: 30 December 2011
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.
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- Macroeconomic Dynamics , Volume 16 , Supplement S1: Nonlinear Dynamics in Equilibrium Models , April 2012 , pp. 86 - 102
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- Copyright © Cambridge University Press 2011
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