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On the Existence of Endogenous Cycles

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  • Balasko Yves
  • Ghiglino Christian

Abstract

Endogenous business cycles have been known to exist in the overlapping-generations model since quite a long time. The literature seems to imply that these cycles may exist only if individuals show rates of preference for the present that are high enough, and these values have to be so high that they are unrealistic. While this observation is true if preferences are homothetic, we show in this paper that, once the homotheticity requirement is dropped, a sufficient condition for the existence of cycles is that the Engel curve defined for equal prices (therefore taken equal to one) has at least a point where the slope is smaller than one. This condition expresses a mild form of impatience. Given this condition, it is always possible to find a discounted utility function (for any arbitrary given discount rate smaller than one) and positive endowments such that the corresponding overlapping- generations model features cycles of order two.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 67 (1995)
Issue (Month): 2 (December)
Pages: 566-577

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Handle: RePEc:eee:jetheo:v:67:y:1995:i:2:p:566-577

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Web page: http://www.elsevier.com/locate/inca/622869

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Cited by:
  1. Balasko, Yves, 2003. "Economies with price-dependent preferences," Journal of Economic Theory, Elsevier, vol. 109(2), pages 333-359, April.
  2. Julio Dávila, . "Reducing Overlapping Generations Economies to Finite Economies," CARESS Working Papres 00-08, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  3. Jan Tuinstra & Claus Weddepohl, 1999. "On the equivalence between the overlapping-generations model and cyclical general-equilibrium models," Journal of Economics, Springer, vol. 70(2), pages 187-207, June.
  4. Orlando Gomes, 2008. "Time Preference and Cyclical Endogenous Growth in an AK Growth Model," Notas Económicas, Faculdade de Economia, Universidade de Coimbra, issue 28, pages 32-55, December.
  5. Gomes, Orlando, 2007. "Time preference and cyclical endogenous growth," MPRA Paper 3282, University Library of Munich, Germany.
  6. Julio Dávila, . "Time and Uncertainty in Overlapping Generations Economies," Penn CARESS Working Papers f4274aafd97bb75e2364542f8, Penn Economics Department.

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