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http://ssrn.com/abstract=3485
 
 

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Chaos, Sunspots, and Automatic Stabilizers


Lawrence J. Christiano


Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Sharon G. Harrison


Columbia University, Barnard College - Department of Economics

August 1996

NBER Working Paper No. w5703

Abstract:     
We study a one-sector growth model which is standard except for the presence of an externality in the production function. The set of competitive equilibria is large. It includes constant equilibria, sunspot equilibria, cyclical and chaotic equilibria, and equilibria with deterministic or stochastic regime switching. The efficient allocation is characterized by constant employment and a constant growth rate. We identify an income tax-subsidy schedule that supports the efficient allocation as the unique equilibrium outcome. That schedule has two properties: (i) it specifies the tax rate to be an increasing function of aggregate employment, and (ii) earnings are subsidized when aggregate employment is at its efficient level. The first feature eliminates inefficient, fluctuating equilibria, while the second induces agents to internalize the externality.

Number of Pages in PDF File: 66

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Date posted: October 15, 1996  

Suggested Citation

Christiano, Lawrence J. and Harrison, Sharon G., Chaos, Sunspots, and Automatic Stabilizers (August 1996). NBER Working Paper No. w5703. Available at SSRN: http://ssrn.com/abstract=3485

Contact Information

Lawrence J. Christiano (Contact Author)
Northwestern University ( email )
2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8231 (Phone)
847-491-7001 (Fax)
Federal Reserve Bank of Cleveland
East 6th & Superior
Cleveland, OH 44101-1387
United States
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL 60604
United States
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Sharon G. Harrison
Columbia University, Barnard College - Department of Economics ( email )
3009 Broadway
New York, NY 10027
United States
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References:  79
Citations:  21
Footnotes:  8

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