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Reducing Overlapping Generations Economies to Finite Economies


  • Julio Dávila


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.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

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  • Julio Dávila, "undated". "Reducing Overlapping Generations Economies to Finite Economies," CARESS Working Papres 00-08, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  • Handle: RePEc:wop:pennca:00-08

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    References listed on IDEAS

    1. Julio Dávila & Piero Gottardi & Atsushi Kajii, 2007. "Local Sunspot Equilibria Reconsidered," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 31(3), pages 401-425, June.
    2. Chiappori, Pierre-Andre & Geoffard, Pierre-Yves & Guesnerie, Roger, 1992. "Sunspot Fluctuations around a Steady State: The Case of Multidimensional, One-Step Forward Looking Economic Models," Econometrica, Econometric Society, vol. 60(5), pages 1097-1126, September.
    3. Forges, Francoise & Peck, James, 1995. "Correlated Equilibrium and Sunspot Equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(1), pages 33-50, January.
    4. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-392, May.
    5. Julio Davila, 1997. "Sunspot Equilibria in Dynamics with Predetermined Variables," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00286029, HAL.
    6. Balasko Yves & Ghiglino Christian, 1995. "On the Existence of Endogenous Cycles," Journal of Economic Theory, Elsevier, vol. 67(2), pages 566-577, December.
    7. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September.
    8. 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.
    9. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
    10. Guesnerie, Roger, 1986. "Stationary sunspot equilibria in an N commodity world," Journal of Economic Theory, Elsevier, vol. 40(1), pages 103-127, October.
    11. Costas Azariadis & Roger Guesnerie, 1986. "Sunspots and Cycles," Review of Economic Studies, Oxford University Press, vol. 53(5), pages 725-737.
    12. 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.
    13. Maskin, Eric & Tirole, Jean, 1987. "Correlated equilibria and sunspots," Journal of Economic Theory, Elsevier, vol. 43(2), pages 364-373, December.
    14. Davila, J., 1999. "The Connection Between Correlated and Sunspot Equilibria Revisited," Papiers d'Economie Mathématique et Applications 1999.78, Université Panthéon-Sorbonne (Paris 1).
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    1. Davila, Julio, 2001. "Time and Uncertainty in Overlapping Generations Economies," Journal of Economic Theory, Elsevier, vol. 100(2), pages 356-386, October.

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