Alternative Dynamics and Stability Results in a Standard OLG Model. An Interpretation
In this paper we make a critique of the standard stability results already established in a basic two period OLG model. Under an alternative interpretation (competitive financial markets), we are able to select the test equilibrium in the long run, in such a way that the economy can reach the Golden Rule Steady State, even when at this interest rate, all young agents are creditors. We show that even if the economy starts with only young people —referred to as the Garden of Eden Economy—, it also reaches the Golden Rule Steady State. Additionally, as a by-product of this study, we obtain a complete characterization of the possible equilibria.
Volume (Year): XIII (2004)
Issue (Month): 2 (July-December)
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