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Trend-reverting fluctuations in the life-cycle model

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  • Costas Azariadis
  • James Bullard
  • Lee Ohanian

Abstract

Aggregate time series provide evidence of short term dynamic adjustment that appears to be governed by complex or negative real eigenvalues. This finding is at odds with the predictions of reasonably parameterized, convex one-sector growth models with complete markets. We study life cycle economies in which aggregate saving depends non-trivially on the distribution of wealth among cohorts. If consumption goods are weak gross substitutes near the steady state price vector, we prove that the unique equilibrium of a life cycle exchange economy converges to the unique non-monetary steady state via damped oscillations. We also discuss examples and extensions. ; Earlier title: Complex Eigenvalues and Trend-Reverting Fluctuations

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1998-015.

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Date of creation: 2001
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Handle: RePEc:fip:fedlwp:1998-015

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Keywords: Business cycles ; Econometric models ; Time-series analysis ; Regression analysis;

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