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Efficient Endogenous Fluctuations in Two-Sector OLG Model

Author

Listed:
  • Antoine Le Riche

    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)

  • Carine Nourry

    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS and IUF)

  • Alain Venditti

    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS and IUF)

Abstract

We consider a two-sector two-good two-periods overlapping generations model with inelastic labor, consumption in both period of life and homothetic CES preferences. There are two consumption goods, one pure(non-durable)consumption and one consumable (durable) capital good which can be either consumed or invested. Assuming gross substitutability and a capital intensive pure consumption good, we prove the existence of efficient endogenous fluctuations through a Hopf bifurcation if the share of the consumption of young in the composite good is low enough. We also show that some fiscal policy rules can improve welfare and prevent the existence of business-cycle fluctuations in the economy by driving it to the optimal steady state as soon as it is announced.

Suggested Citation

  • Antoine Le Riche & Carine Nourry & Alain Venditti, 2012. "Efficient Endogenous Fluctuations in Two-Sector OLG Model," AMSE Working Papers 1242, Aix-Marseille School of Economics, France, revised Dec 2012.
  • Handle: RePEc:aim:wpaimx:1242
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    References listed on IDEAS

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    Cited by:

    1. Antoine Riche & Francesco Magris, 2017. "Equilibrium Dynamics in a Two-Sector OLG Model with Liquidity Constraint," Studies in Economic Theory, in: Kazuo Nishimura & Alain Venditti & Nicholas C. Yannelis (ed.), Sunspots and Non-Linear Dynamics, chapter 0, pages 147-174, Springer.

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