PRICE-LEVEL VOLATILITY - A SIMPLE-MODEL OF MONEY TAXES AND SUNSPOTS

We investigate sunspot equilibria in a static, one-commodity model wit h taxes and transfers denominated in money units. Volatility in this e conomy is purely monetary, since the only uncertainty is about the pri ce level. We construct simple, robust examples of sunspot equilibria t hat are not mere randomizations over certainty equilibria. We also ide ntify the source of these SSEs: Equilibrium in the securities market i s determined as if there were no restricted consumers and the unrestri cted consumers face intrinsic uncertainty. Perfect securities markets eliminate allocation uncertainty, but they exacerbate price-level vola tility. (C) 1998 Academic Press.