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Reducing Overlapping Generations Economies to Finite Economies

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  • Julio Davila

    (University of Pennsylvania)

Abstract

This paper establishes an identification of stationary equilibria of an infinite-horizon economy and equilibria of a naturally related finite economy. More specifically, the connection is established, firstly, between cycles of an overlapping generations economy and the equilibria of a finite economy with a cyclical structure. Such connection is then extended to hold also when extrinsic uncertainty is introduced in the models. In order to obtain the adequate counterpart of the connection once the extrinsic uncertainty is introduced, we are lead to consider in the overlapping generations framework sunspot equilibria of a broad class, called here sunspot cycles. The previous connections between the equilibria of the two frameworks, with and without sunspots, are used to show that: a) overlapping generations economies allowing for heterogeneity across generations typically fluctuate aperiodically for arbitrarily long periods of time, while nevertheless being able to exhibit an approximate cyclical behavior during those periods and b) the presence of asymmetric information on an extrinsic uncertainty may induce continua of equilibria in finite economies.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1124.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1124

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  1. 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.
  2. Forges, F. & Peck, J., . "Correlated equilibrium and sunspot equilibrium," CORE Discussion Papers RP -1140, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Maskin, Eric & Tirole, Jean, 1987. "Correlated equilibria and sunspots," Journal of Economic Theory, Elsevier, vol. 43(2), pages 364-373, December.
  4. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-92, May.
  5. Julio Dávila & Piero Gottardi & Atsushi Kajii, 2007. "Local Sunspot Equilibria Reconsidered," Economic Theory, Springer, vol. 31(3), pages 401-425, June.
  6. Balasko Yves & Ghiglino Christian, 1995. "On the Existence of Endogenous Cycles," Journal of Economic Theory, Elsevier, vol. 67(2), pages 566-577, December.
  7. Chiappori, P.A. & Guesnerie, R., 1990. "Sunspot Equilibria in Sequential Markets Models," DELTA Working Papers 90-05, DELTA (Ecole normale supérieure).
  8. Azariadis, Costas & Guesnerie, Roger, 1986. "Sunspots and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 725-37, October.
  9. Guesnerie, Roger, 1986. "Stationary sunspot equilibria in an N commodity world," Journal of Economic Theory, Elsevier, vol. 40(1), pages 103-127, October.
  10. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  11. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  12. Davila, J., 1999. "The Connection Between Correlated and Sunspot Equilibria Revisited," Papiers d'Economie Mathématique et Applications 1999.78, Université Panthéon-Sorbonne (Paris 1).
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Cited by:
  1. Julio Dávila, . "Time and Uncertainty in Overlapping Generations Economies," Penn CARESS Working Papers f4274aafd97bb75e2364542f8, Penn Economics Department.

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