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Resurrecting Equilibria Through Cycles

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Author Info
Barnett, Richard
Bhattacharya, Joydeep
Bunzel, Helle

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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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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12834.

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Date of creation: 26 Jul 2007
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Handle: RePEc:isu:genres:12834

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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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:
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
D5 - Microeconomics - - General Equilibrium and Disequilibrium
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. repec:cup:macdyn:v:2:y:1998:i:1:p:22-48 is not listed on IDEAS
  2. 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!]
  3. 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)
    Other versions:
  4. Bullard, James & Duffy, John, 1998. "Learning And The Stability Of Cycles," Macroeconomic Dynamics, Cambridge University Press, vol. 2(01), pages 22-48, March. [Downloadable!]
  5. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September. [Downloadable!] (restricted)
  6. 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!]
  7. James Bullard & John Duffy, 1995. "On learning and the stability of cycles," Working Papers 1995-006, Federal Reserve Bank of St. Louis. [Downloadable!]
  8. 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:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  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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