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Stationary Markov Equilibria in an OLG Model with Correlated Production Shocks

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  • Wang, Yong

Abstract

In this paper, the author examines the existence of stationary equilibria in an overlapping generations model where production shocks are correlated over time. In general, the system is complicated by dynamic indeterminacy and possibility of sunspot equilibria. However, there exists a time-homogeneous Markov process of the state variable that represents a nonsunspot dynamic equilibrium. The long-run analysis establishes a sufficient condition for the existence of a nontrivial stationary equilibrium. Moreover, it is shown that the conventional restrictions on the production function are not sufficient to prevent the economy from converging to zero production and consumption. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 35 (1994)
Issue (Month): 3 (August)
Pages: 731-44

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Handle: RePEc:ier:iecrev:v:35:y:1994:i:3:p:731-44

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Cited by:
  1. Kevin Reffett & Olivier Morand, 2008. "Isotone recursive methods for Stationary Markov Equilibra in OLG models with stochastic nonclassical production," 2008 Meeting Papers 470, Society for Economic Dynamics.
  2. Takeoka, Norio, 2003. "On the consistency of stationary Markov equilibria with an exogenous distribution," Journal of Economic Theory, Elsevier, vol. 113(2), pages 316-324, December.
  3. Morand, Olivier F. & Reffett, Kevin L., 2007. "Stationary Markovian equilibrium in overlapping generation models with stochastic nonclassical production and Markov shocks," Journal of Mathematical Economics, Elsevier, vol. 43(3-4), pages 501-522, April.
  4. Cetorelli, Nicola, 2002. "Could Prometheus be bound again? A contribution to the convergence controversy," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 29-50, November.
  5. Takeoka, Norio, 2006. "Stationary Markov equilibria on a non-compact self-justified set," Journal of Mathematical Economics, Elsevier, vol. 42(3), pages 269-290, June.
  6. Klaus Reiner Schenk-Hoppé, 2002. "Poverty Traps and Business Cycles in a Stochastic Overlapping Generations Economy with S-shaped Law of Motion," Discussion Papers 02-13, University of Copenhagen. Department of Economics.
  7. Costas Xiouros, 2006. "Asset price volatilities and trading volumes in heterogeneous agent economies," Computing in Economics and Finance 2006 466, Society for Computational Economics.
  8. Hillebrand, Marten, 2011. "On the role of labor supply for the optimal size of Social Security," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1091-1105, July.

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