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Resurrecting Equilibria Through Cycles

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Author Info
Richard C. Barnett
Joydeep Bhattacharya
Helle Bunzel () (School of Economics and Management, University of Aarhus, Denmark)

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Abstract

In an overlapping generations model, momentary equilibria are defined as points that lie on the intergenerational offer curve, i.e., they satisfy agents’ optimality conditions and market clearing at any date. However, some dynamic sequences commencing from such points may not be considered valid equilibria because they asymptotically violate some economic restriction of the model. The literature has always ruled out such paths. This paper studies a pure-exchange monetary overlapping generations economy in which real balances cycle forever between momentary equilibrium points. The novelty is to show that segments of the offer curve that have been previously ignored, can in fact be used to produce asymptotically valid cyclical paths. Indeed, a cycle can bestow dynamic validity on momentary equilibrium points that had erstwhile been classified as dynamically invalid.

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Publisher Info
Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2007-12.

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Length: 19
Date of creation: 19 Sep 2007
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Handle: RePEc:aah:aarhec:2007-12

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Related research
Keywords: overlapping generations models; monetary equilibria; cycles; minimum consumption requirements;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization

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References listed on IDEAS
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  1. repec:cup:macdyn:v:2:y:1998:i:1:p:22-48 is not listed on IDEAS
  2. Luís Aguiar-Conraria & Karl Shell, 2006. "Capital gains," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(3-4), pages 331-349. [Downloadable!] (restricted)
    Other versions:
    • Aguiar-Conraria, Luis & Shell, Karl, 2006. "Capital Gains," Working Papers 06-02, Cornell University, Center for Analytic Economics. [Downloadable!]
  3. Erkki Koskela & Mikko Puhakka, 2006. "Cycles and Indeterminacy in Overlapping Generations Economies with Stone-Geary Preferences," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. James Bullard & John Duffy, 1995. "On learning and the stability of cycles," Working Papers 1995-006, Federal Reserve Bank of St. Louis. [Downloadable!]
  5. Bunzel, Helle, 2006. "Habit persistence, money, and overlapping generations," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2425-2445, December. [Downloadable!] (restricted)
    Other versions:
  6. Boldrin, Michele & Woodford, Michael, 1990. "Equilibrium models displaying endogenous fluctuations and chaos : A survey," Journal of Monetary Economics, Elsevier, vol. 25(2), pages 189-222, March. [Downloadable!] (restricted)
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  7. Bullard, James & Duffy, John, 1998. "Learning And The Stability Of Cycles," Macroeconomic Dynamics, Cambridge University Press, vol. 2(01), pages 22-48, March. [Downloadable!]
  8. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September. [Downloadable!] (restricted)
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  1. Barnett, Richard C & Bhattacharya, Joydeep & Bunzel, Helle, 2008. "Deviant Generations, Ricardian Equivalence, and Growth Cycles," Staff General Research Papers 12939, Iowa State University, Department of Economics. [Downloadable!]
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