endogenous business cycles and systematic stabilization policy we study the effects of fiscal policy rules on the determinacy of rational expectations equilibrium in a perfectly competitive monetary model with constant returns government spending implies a distortion of the monetary steady state due to the implied taxation we show that policy rules that let the gnp share of government spending depend sufficiently negatively on increases in gnp stabilize the economy with respect to endogenous fluctuations for arbitrarily little distortion of the steady state at which stabilization occurs the rules do not involve lump sum taxation negative income taxation or exact knowledge of the economy s laissez faire steady state

public health spending old age productivity and economic growth chaotic cycles under perfect foresight abstract this paper analyses the dynamics of a double cobb douglas economy with overlapping generations and public health investments that affect the supply of efficient labour of the old aged it is shown that the positive steady state of the economy is unique moreover we provide necessary and sufficient conditions for the emergence of endogenous deterministic complex cycles when individuals are perfectly foresighted interestingly i the equilibrium dynamics shows rather complicated phenomena such as a multiplicity of bubblings depending on the size of the public health system and ii the higher the degree of thriftiness the likelier an economy is exposed to endogenous fluctuations because the need to save when young to support consumption when old is reduced

optimal fiscal policy under multiple equilibria abstract we study optimal fiscal policy in an economy where i search frictions create a coordination problem and generate multiple pareto ranked equilibria and ii the government finances the provision of a public good by taxing market activity the government must choose the tax rate before it knows which equilibrium will obtain and therefore an important part of the problem is determining how the policy will affect the equilibrium selection process we show that when the equilibrium selection rule is based on the concept of risk dominance higher tax rates make coordination on the pareto superior outcome less likely as a result taking equilibrium selection effects into account leads to a lower optimal tax rate

a characterization of erratic dynamics in the overlapping generations model abstract in this paper we characterize and give examples o wide classes of utility functions which generate erratic dynamics in the standard deterministic overlapping generations model erratic dynamics refers to feasible trajectories which are bounded but which do not converge to stationary points or periodic orbits we show that such trajectories are pareto efficient we introduce credit into the model and show how a constant credit expansion rate can result in erratic trajectories in prices and the real value of credit finally we briefly discuss certain technical aspects of the mathematics used and the statistical nature of the dynamics that can arise from deterministic dynamical systems

capital labor substitution and competitive nonlinear endogenous business cycles abstract we develop simple geometrical methods to study local indeterminacy bifurcations and stochastic sunspot equilibria near a steady state in nonlinear two dimensional economic models we present in particular a simple constructive geometrical characterization of the support of stochastic sunspot equilibria not only arbitrarily near a steady state but also along local bifurcations these methods are applied to a simple aggregative model to study in particular the influence of capital labor substitution and of the aggregate labor supply wage elasticity on the occurrence of competitive endogenous deterministic or stochastic fluctuations journal of economic literature classification numbers e32 c62

stability of cycles and expectations the actual dynamics of an economy depends on how agents forecast the future at every date as a function of their information on the past while possibly learning the structure of their environment we show in the case of a one dimensional state variable that under mild conditions on expectations functions a given cycle with perfect foresight that is stable in the actual dynamics is stable in a fictitious backward perfect foresight dynamics we exhibit a restricted class of expectations functions for which the converse is true

strategic complementarity in business formation aggregate fluctuations and sunspot equilibria the extent to which changes in beliefs can be important factors in initiating economic fluctuations has been a prominent area of investigation for macroeconomists the notion that beliefs about the future influence current decisions is a property of almost all dynamic economic systems the more challenging task is identifying economic environments in which changes in beliefs alone influence current choices in such a way that the variations in beliefs are self fulfilling because the resulting fluctuations arise in the absence of variations in fundamental variables such as preferences and technology they are often termed sunspot equilibria apart from suggesting that instability of expectations may be a distinct source of cyclical volatility sunspot equilibria may also explain why apparently small disturbances in fundamentals lead to large change in macroeconomic aggregates in this study we demonstrate the possibility of sunspot equilibria in an overlappinggenerations economy characterized by a plausible form of strategic complementarity as more agents enter as producers in any particular sector of the economy they create an incentive for agents to enter as producers into other sectors as well 2 the basis for this

optimal policy in og models in the present paper general stationary overlapping generations economies with many commodities in every period and many different consumers in every generation are considered a government maximizes an utilitarian social welfare function that is the sum of weighted averages of utilities for generations through fiscal policy i e monetary transfers and taxes both situations with and without time discounting are considered it is shown that if the discount factor is sufficiently close to one then the optimal policy stabilizes the economy i e the equilibrium path has the turnpike property moreover the fiscal policy is shown to be time consistent

a contribution to the theory of business cycles an economy consisting of identical perfectly competitive firms with real liquidity costs and a one period production lag has a locally unstable stationary equilibrium with complex eigenvalues for a wide range of parameters monetary policy aimed at stabilizing real balances can support nonstationary equilibrium paths that converge to a limit cycle which has keynesian features the first welfare theorem does not hold because the price level appears in the production function through liquidity costs so that production has a positive externality

introduction to market psychology and nonlinear endogenous business cycles abstract the purpose of this symposium is to present geometric methods that are useful to study multiple equilibria and endogenous fluctuations in simple two dimensional macroeconomic models with a single predetermined variable characterizing the support of a sunspot equilibrium by its invariance properties in the underlying deterministic dynamics generates a complete description of stochastic endogenous fluctuations near a stationary state and along local bifurcations graphical methods to perform sensitivity analysis of local indeterminacy and bifurcations with respect to variations of uncertain economic parameters are also presented these methods are applied to specific macroeconomic models with constant returns to scale with external increasing returns and with imperfect competition journal of economic literatureclassification numbers e32 c62

equilibrium models displaying endogenous fluctuations and chaos abstract this paper surveys current developments in dynamic general equilibrium theory concerned with conditions under which endogenous fluctuations are possible existing contributions are divided into two classes the larger one consists of models with a unique perfect foresight equilibrium while the second includes models where equilibrium is indeterminate and the set of equilibria involving endogenous fluctuations includes sunspots equilibria while the two classes of models involve oscillations of different natures and with different policy implications we show that both are consistent with optimizing behavior and competitive equilibrium

parcelling virtual carbon in the pollution haven hypothesis the methodology proposed in this paper allows us to parcel the pollution haven hypothesis phh into a bi regional input output framework to analyse whether the specialisation of countries in different stages of production and or in final goods trading generates an increase or a decrease in global emissions as a consequence of international trade we apply the model to the spain china trade relationship as it existed in 2005 finding a phh of 29 667 ktco2 if this trade had not existed so each country had met its demand for intermediate and final goods global emissions would have been reduced by these 29 667 ktco2 of this phh 43 5 corresponds to imports of final goods 32 4 is related to imports of intermediate goods for the last stage of production the remainder 24 1 is caused by global value chains gvc between the countries only 3229 ktco2 of phh emissions are linked to domestic emissions from the sector in which the imports are produced the rest is explained by domestic linkages or successive rounds of domestic production which supports the existence of an indirect phh together with a trade growth in the last years the fall of trade barriers would have implied a transformation of global production chains that have boosted global emissions

keynesian issues and economic theory recent research helped in clarifying the nature of short run price and quantity adjustments in keynesian macroeconomic models and the possible causes of a persistent excess labour supply it is argued however that theories involving imperfect competition and real wage rigidities generate classical unemployment where multipliers act through supply side effects while nominal inertia seems to be at the root of truly keynesian multipliers the appraisal also contains a nontechnical presentation of recent models of endogenous expectations driven business fluctuations cycles sunspots monetary policy can then have persistent real effects under complete information money as a sunspot

on endogenous competitive business cycles the belief that the long run equilibrium of a competitive monetary economy that does not experience any exogeneous shocks whether originating from the external environment or from policy should be modelled as a state that is stationary or perhaps growing at a constant rate seems to be deeply rooted in the mind of some economists

endogenous real exchange rate fluctuations in an optimizing open economy model abstract this paper constructs a simple intertemporal model of a small open economy inhabited by forward looking agents in which endogenous fluctuations in the real exchange rate can arise in equilibrium i e fluctuations that are not linked to movements in economic fundamentals the key condition for the main results is the assumption that the marshall lerner condition does not hold i e that the country s exports and imports are inelastic to its real exchange rate it is shown that given that the marshall lerner condition fails there exist periodic equilibria and or stationary sunspot equilibria in the neighborhood of the stationary state

non linear endogenous fluctuations with free entry and variable markups abstract the paper explores the effects of markup variability associated with free entry of cournotian firms on the occurrence of local indeterminacy local hopf bifurcations and multiplicity of steady states it uses an overlapping generations model with capital in which differentiated intermediate goods are produced with constant marginal cost plus a positive fixed cost if the markup factor were constant the case of no free entry or the case of zero fixed costs leading to the perfectly competitive outcome no local endogenous fluctuations or multiplicity of steady states can emerge unless factors of production are complementary on the contrary with any positive variable market power indeterminacy and multiplicity of steady states is possible for any value of the elasticity of technological substitution and local hopf bifurcations may also emerge provided variable market power is high enough

endogenous imperfectly competitive business cycles abstract we investigate how imperfect competition affects the occurrence and the properties of endogenous rational expectations business cycles in an overlapping generations model with constant returns to scale in production the model has explicit product and labor markets all characterized by monopolistic competition an implicit assumption of barriers to entry justifies that the number of firms is fixed even when positive profits occur it turns out that both market power of firms on the product markets and market power of unions on the labor markets make the occurrence of cycles more likely in particular imperfect competition on the product markets and the positive profits associated with it may have the effect that there is a cycle even if the labor supply curve is increasing in the real wage rate for competitive cycles is required not only a decreasing labor supply curve but a wage elasticity below 1 2 at stationary equilibrium market power on the labor markets may have the effect that imperfectly competitive cycles are in accordance with certain empirical regularities some well known some reported in the paper concerning fluctuations in output and involuntary unemployment since involuntary unemployment does not occur under perfect competition such regularities are incompatible with competitive cycles

equilibrium cycles in an overlapping generations economy with production abstract perfect foresight equilibrium trajectories of an overlapping generations model with production may include stable or unstable invariant closed curves these orbits are detected using the hopf bifurcation theorem where the parameter of bifurcation is purely technological the paper also proves that there is a stabilization policy that completely eliminates the cycle finally using a c e s production function it is shown that the range of values of the elasticity of substitution between capital and labor for which cycles may exist is bounded above

deficits and cycles abstract this paper shows that periodic equilibria may arise in a simple overlapping generations model with capital if the government follows a policy of fixing the value of the deficit rather than fixing the value of government debt then the difference equation that describes competitive equilibria may posses complex roots in the neighborhood of the golden rule stationary state one may show that if there exist parametric families of economies for which these roots change stability then locally there exists an invariant closed curve the paper provides two simple examples that generate such equilibria and it solves these examples numerically

indeterminacy in dynamic models when diamond meets ramsey abstract we consider an aggregate two periods overlapping generations model with endogenous labor consumption in both periods of life homothetic preferences and productive external effects coming from the average capital and labor we show that under realistic calibrations of the parameters in particular a large enough share of first period consumption over the wage income local indeterminacy of equilibria cannot occur with capital externalities alone it can nevertheless occur when there are only even very small vanishing labor externalities provided that the elasticity of capital labor substitution and the wage elasticity of the labor supply are large enough we also show that if labor externalities are slightly stronger but still small enough to be plausible and the elasticity of labor supply is larger local indeterminacy occurs in a cobb douglas economy finally we show that a locally indeterminate steady state is generically characterized by an under accumulation of capital it follows therefore that while agents live over a finite number of periods the conditions for the existence of locally indeterminate equilibria are very similar to those obtained within infinite horizon models and that from this point of view diamond meets ramsey

on criminals risk attitudes abstract if criminals are expected utility maximizers and more sensitive to changes in the certainty than the severity of punishment they must be risk preferrers we show that risk aversion is not ruled out if the expected utility hypothesis is weakened 1997 elsevier science s a

redistributive taxation in a simple life cycle model an overlapping generations model with rich and poor life cycle planners is developed positive aspects of redistributive capital and labor taxation are then analyzed the conditions required for feldstein s result that the long run capital labor ratio is invariant to wage taxations are discussed the utility frontier is shown to generally have a slope with an absolute value different from one in the neighborhood of a no tax equilibrium labor income is clearly a more efficient base for long run redistribution only if the economy is dynamically inefficient and the rich household benefits from an increase in the gross interest rate even in this case the labor income base may not be considered more desirable when transitional effects are considered copyright 1989 by the london school of economics and political science

dynamic inefficiency in an overlapping generations economy with production abstract reichlin equilibrium cycles in an overlapping generations economy with production j econ theory 40 1986 89 102 has shown in an olg model with productive capital that whenever the steady state is locally indeterminate and undergoes a hopf bifurcation it is pareto optimal while these results were established under the assumption of leontief technology the author has partially extended them to show that the hopf bifurcation is robust with respect to the introduction of capital labor substitution in this note we prove that the pareto optimality of the steady state does not extend to technologies with capital labor substitution when the steady state is a sink or undergoes a hopf bifurcation it is characterized by over accumulation with respect to the golden rule the interest rate is negative hence not pareto optimal most importantly it follows that stabilization policies targeting the steady state leave room for welfare losses associated with productive inefficiency apart from the very special case of leontief technology

safe debt risky capital the author extends the diamond 1965 model of national debt in two directions she first introduces technological uncertainty and then she allows the stock of debt to vary the author studies the dynamical equilibria of the resulting stochastic system and she establishes conditions for the existence of stationary states that are expressed in terms of invariant distributions since conditions that ensure the existence of a stochastic stationary state with positive debt are very restrictive in this model financial instability is a pervasive phenomenon and allocations are in general dynamically inefficient copyright 1994 by the london school of economics and political science