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Recursive equilibrium in stochastic OLG economies: Incomplete markets

  • Citanna, Alessandro
  • Siconolfi, Paolo
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    We prove generic existence of recursive equilibrium for overlapping generations economies with uncertainty and incomplete financial markets. Generic here means in a residual set of utilities and endowments. The result holds provided there is sufficient intragenerational household heterogeneity, and transition probabilities and the asset payoff matrix satisfy mild regularity conditions. The paper also provides a new methodological technique to establish comparative statics, or perturbation, properties in such environments.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304406812000584
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    Article provided by Elsevier in its journal Journal of Mathematical Economics.

    Volume (Year): 48 (2012)
    Issue (Month): 5 ()
    Pages: 322-337

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    Handle: RePEc:eee:mateco:v:48:y:2012:i:5:p:322-337
    Contact details of provider: Web page: http://www.elsevier.com/locate/jmateco

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    1. George M. Constantinides & John B. Donaldson & Rajnish Mehra, . "Junior Can't borrow: A New Perspective on the Equity Premium Puzzle."," CRSP working papers 457, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    2. John Geanakoplos & Michael Magill & Martine Quinzii, 2002. "Demography and the Long-run Predictability of the Stock Market," Cowles Foundation Discussion Papers 1380R, Cowles Foundation for Research in Economics, Yale University, revised Jul 2004.
    3. Felix Kubler & Herakles Polemarchakis, 2004. "Stationary Markov equilibria for overlapping generations," Economic Theory, Springer, vol. 24(3), pages 623-643, October.
    4. Duffie, Darrell, et al, 1994. "Stationary Markov Equilibria," Econometrica, Econometric Society, vol. 62(4), pages 745-81, July.
    5. Lars Ljungqvist & Thomas J. Sargent, 2004. "Recursive Macroeconomic Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026212274x, June.
    6. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2004. "Cyclical Dynamics in Idiosyncratic Labor Market Risk," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 695-717, June.
    7. Rios-Rull, Jose-Victor, 1996. "Life-Cycle Economies and Aggregate Fluctuations," Review of Economic Studies, Wiley Blackwell, vol. 63(3), pages 465-89, July.
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