Frequency of trade and the deterrminacy of equilibrium in economies of overlapping generations
In a recent article, Demichelis and Polemarchakis (2007) highlighted the role played by the frequency of trade on the degree of indeterminacy of equilibrium in economies of overlapping generations. Assuming that time has a finite starting point and extends into the infinite future, they prove that the degree of indeterminacy increases with the number of periods in the life-span of individuals, which is assumed to be certain. We show that this result does not hold when individual longevity is uncertain. We build a discrete time model that uniformly converges to a standard continuous time overlapping-generation model when the frequency of trade is infinite. Deriving the equilibrium prices, we demonstrate that the degree of indeterminacy is independent of the frequency of trade and is always equal to one.
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