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On The Existence Of Endogenous Cycles

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  • Yves Balasko

    ()
    (University of Geneva)

  • Christian Ghiglino

    ()
    (University of Geneva)

Abstract

Endogenous business cycles have been known to exist in the overlapping-generations model since quite a long time. The literature seems to imply that these cycles may exist only if individuals show rates of preference for the present that are high enough, and these values have to be so high that they are unrealistic. While this observation is true if preferences are homothetic, we show in this paper that, once the homotheticity requirement is dropped, a sufficient condition for the existence of cycles is that the Engel curve defined for equal prices (therefore taken equal to one) has at least a point where the slope is smaller than one. This condition expresses a mild form of impatience. Given this condition, it is always possible to find a discounted utility function (for any arbitrary given discount rate smaller than one) and positive endowments such that the corresponding overlapping- generations model features cycles of order two.

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Paper provided by Theory and Mathematics of the Economy and the Society in its series Preprints with number _001.

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Publication status: Published in J.E.T
Handle: RePEc:wop:tmespr:_001

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Cited by:
  1. Orlando Gomes, 2008. "Time Preference and Cyclical Endogenous Growth in an AK Growth Model," Notas Económicas, Faculdade de Economia, Universidade de Coimbra, Faculdade de Economia, Universidade de Coimbra, issue 28, pages 32-55, December.
  2. Davila, Julio, 2001. "Time and Uncertainty in Overlapping Generations Economies," Journal of Economic Theory, Elsevier, Elsevier, vol. 100(2), pages 356-386, October.
  3. Julio Davila, 2000. "Reducing Overlapping Generations Economies to Finite Economies," Econometric Society World Congress 2000 Contributed Papers 1124, Econometric Society.
  4. Balasko, Yves, 2003. "Economies with price-dependent preferences," Journal of Economic Theory, Elsevier, Elsevier, vol. 109(2), pages 333-359, April.
  5. Jan Tuinstra & Claus Weddepohl, 1999. "On the equivalence between the overlapping-generations model and cyclical general-equilibrium models," Journal of Economics, Springer, Springer, vol. 70(2), pages 187-207, June.
  6. Gomes, Orlando, 2007. "Time preference and cyclical endogenous growth," MPRA Paper 3282, University Library of Munich, Germany.

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