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Stationary Solution to the Overlapping Generations Model of Fiat Money: Experimental Evidence

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  • Lim, Suk S
  • Prescott, Edward C
  • Sunder, Shyam

Abstract

Overlapping generations model of fiat money yields an infinity of competitive equilibrium solutions, only one of which is stationary. Economies reported in this paper involved a sequence of overlapping generations of three or four individuals; each individual lived for two periods. In their young age individuals were endowed with "chips" that could be traded for fiat money with the individuals of the old generation. In their old age, individuals could exchange their units of fiat money for the consumption good. Results of the experiments exhibit some support for the stationary solution. The results are robust to two designs of exchange institutions (double oral auction and supply schedule auction) and to two different endogenous ways of converting money into "chips" at the end of the game (average price prevailing during the last period the game is actually played and the average price forecast made during the last period the game is actually played).

Suggested Citation

  • Lim, Suk S & Prescott, Edward C & Sunder, Shyam, 1994. "Stationary Solution to the Overlapping Generations Model of Fiat Money: Experimental Evidence," Empirical Economics, Springer, vol. 19(2), pages 255-277.
    • Handle: RePEc:spr:empeco:v:19:y:1994:i:2:p:255-77
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