Price Level Volatility: A Simple Model of Money Taxes and Sunspots

Preprint
Publisher Website
Google Scholar
  • 1 January 2009
    • preprint
      • Published in RePEc
Abstract
We investigate sunspot equilibria in a static, one-commodity model with taxes and transfers denominated in money units. Volatility in this economy is purely monetary, since the only uncertainty is about the price level. We construct simple, robust examples of sunspot equilibria that are not mere randomizations over certainty equilibria. We also identify the source of these SSEs: equilibrium in the securities market is determined as if there were no restricted consumers and the unrestricted consumers face intrinsic uncertainty. Perfect securities markets eliminate allocation uncertainty, but they exacerbate price-level volatility.
All Related Versions

This publication has 0 references indexed in Scilit: