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Reducing Overlapping Generations Economies to Finite Economies

  • Julio Davila

    (University of Pennsylvania)

This paper establishes an identification of stationary equilibria of an infinite-horizon economy and equilibria of a naturally related finite economy. More specifically, the connection is established, firstly, between cycles of an overlapping generations economy and the equilibria of a finite economy with a cyclical structure. Such connection is then extended to hold also when extrinsic uncertainty is introduced in the models. In order to obtain the adequate counterpart of the connection once the extrinsic uncertainty is introduced, we are lead to consider in the overlapping generations framework sunspot equilibria of a broad class, called here sunspot cycles. The previous connections between the equilibria of the two frameworks, with and without sunspots, are used to show that: a) overlapping generations economies allowing for heterogeneity across generations typically fluctuate aperiodically for arbitrarily long periods of time, while nevertheless being able to exhibit an approximate cyclical behavior during those periods and b) the presence of asymmetric information on an extrinsic uncertainty may induce continua of equilibria in finite economies.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1124.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1124
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  1. Yves Balasko & Christian Ghiglino, . "On The Existence Of Endogenous Cycles," Preprints _001, Theory and Mathematics of the Economy and the Society.
  2. Chiappori, Pierre Andre & Guesnerie, Roger, 1991. "Sunspot equilibria in sequential markets models," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 32, pages 1683-1762 Elsevier.
  3. Julio Dvila & Piero Gottardi & Atsushi Kajii, . "Local Sunspot Equilibria Reconsidered," Penn CARESS Working Papers 164a7928416be97f49ebc2b58, Penn Economics Department.
  4. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  5. Forges, F., 1991. "Correlated equilibrium and sunspot equilibrium," CORE Discussion Papers 1991053, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-92, May.
  7. Chiappori, P.A. & Geoffard, P.Y. & Guesnerie, R., 1990. "Sunspot Fluctuations around a Steady State: The Case of Multidimensional One-Step forward Looking Economic Models," DELTA Working Papers 90-02, DELTA (Ecole normale supérieure).
  8. Azariadis, Costas & Guesnerie, Roger, 1986. "Sunspots and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 725-37, October.
  9. Jan Tuinstra & Claus Weddepohl, 1999. "On the equivalence between the overlapping-generations model and cyclical general-equilibrium models," Journal of Economics, Springer, vol. 70(2), pages 187-207, June.
  10. Maskin, Eric & Tirole, Jean, 1987. "Correlated equilibria and sunspots," Journal of Economic Theory, Elsevier, vol. 43(2), pages 364-373, December.
  11. Davila, J., 1999. "The Connection Between Correlated and Sunspot Equilibria Revisited," Papiers d'Economie Mathématique et Applications 1999.78, Université Panthéon-Sorbonne (Paris 1).
  12. Guesnerie, Roger, 1986. "Stationary sunspot equilibria in an N commodity world," Journal of Economic Theory, Elsevier, vol. 40(1), pages 103-127, October.
  13. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
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