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Infinite-Horizon and Overlapping-Generations Models

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  • Vîntu, Denis

Abstract

This paper studies the relation between two widely used macroeconomic frameworks: the infinite-horizon general equilibrium model with infinitely-lived agents (GEILA) and the overlapping generations (OLG) model. We show that a two-cycle equilibrium of the GEILA model is an equilibrium of the OLG model, and conversely, an equilibrium of the OLG model can be viewed as a two-cycle equilibrium of the GEILA model. Using this equivalence, we explore the existence of equilibrium indeterminacy and rational asset price bubbles in both frameworks. Our results provide a unified perspective on these important economic phenomena across the two modeling approaches.

Suggested Citation

  • Vîntu, Denis, 2025. "Infinite-Horizon and Overlapping-Generations Models," MPRA Paper 125711, University Library of Munich, Germany, revised Aug 2025.
    • Handle: RePEc:pra:mprapa:125711
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    3. Auerbach, Alan J & Kotlikoff, Laurence J, 1987. "Evaluating Fiscal Policy with a Dynamic Simulation Model," American Economic Review, American Economic Association, vol. 77(2), pages 49-55, May.
    4. David Cass, 1965. "Optimum Growth in an Aggregative Model of Capital Accumulation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(3), pages 233-240.
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    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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