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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.

Suggested Citation

  • Wang, Yong, 1994. "Stationary Markov Equilibria in an OLG Model with Correlated Production Shocks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 731-744, August.
    • Handle: RePEc:ier:iecrev:v:35:y:1994:i:3:p:731-44
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    Cited by:

    1. 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.
    2. Hillebrand, Marten, 2014. "Uniqueness of Markov equilibrium in stochastic OLG models with nonclassical production," Economics Letters, Elsevier, vol. 123(2), pages 171-176.
    3. 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.
    4. 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.
    5. Martin Barbie & Marten Hillebrand, 2018. "Bubbly Markov equilibria," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(3), pages 627-679, October.
    6. Böhm, Volker & Wenzelburger, Jan, 2002. "Perfect Predictions In Economic Dynamical Systems With Random Perturbations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(5), pages 687-712, November.
    7. 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.
    8. 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.
    9. Schenk-Hoppe, Klaus Reiner, 2005. "Poverty traps and business cycles in a stochastic overlapping generations economy with S-shaped law of motion," Journal of Macroeconomics, Elsevier, vol. 27(2), pages 275-288, June.
    10. 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.
    11. Costas Xiouros, 2006. "Asset price volatilities and trading volumes in heterogeneous agent economies," Computing in Economics and Finance 2006 466, Society for Computational Economics.

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