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Life-span and the determinacy of equilibrium in economies of overlapping generations

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  • DEMICHELIS, Stefano
  • POLEMARCHAKIS, Heracles
Abstract
Equilibrium paths in an economy of overlapping generations are determinate. Time is either discrete or continuous; in either case, it extend into the infinite future and, possibly, the infinite past. There is one, nonstorable commodity at each date. The economy is stationary; intertemporal preferences are logarithmic; the endowments and discount factors of individuals need not depend continuously on time. With continuous time, equilibrium paths of prices are smooth; this, even for endowments and discount factors of individuals that do not depend continuously on time. With discrete time, as the number of periods in the life-span of individuals increases, equilibrium paths converge to the continuous time solutions. If time extends infinitely into the infinite past as well as into the infinite future, in continuous time, all non-stationary equilibrium paths of prices are time-shifts of a single path; in addition, there are two stationary solutions; in discrete time, there is a one dimensional family of non-stationary solutions, up to time-shift; however the indeterminacy vanishes as the number of periods in the life-span of individuals tends to infinity. If, alternatively, time has a finite starting point, in discrete time the degree of indeterminacy increases with the life-span of individuals, and, in continuous time, it is infinite; however these are families of exponentially decreasing oscillations which, although they may exhibit pseudo-chaotic behaviour for a while, as time tends to infinity they all get damped, and asymptotic behaviour is that of the economy that originates in the infinite past.

Suggested Citation

  • DEMICHELIS, Stefano & POLEMARCHAKIS, Heracles, 2000. "Life-span and the determinacy of equilibrium in economies of overlapping generations," LIDAM Discussion Papers CORE 2000034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2000034
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2000.html
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    References listed on IDEAS

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    1. Molina-Abraldes, Antonio & Pintos-Clapés, Juan, 2008. "Pareto optimality in continuous-time OLG economies," Journal of Mathematical Economics, Elsevier, vol. 44(9-10), pages 933-950, September.

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    More about this item

    Keywords

    life-span; continuous time; overlapping generations; determinacy.;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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