Simple Overlapping Generations Model Research Articles

Optimal and time consistent exchange-rate management in an overlapping-generations economy

This paper analyzes exchange-rate management in a simple overlapping generations model. This framework is used to evaluate alternative policies in terms of their implications for the welfare of individuals in the economy and for generating seigniorage. When the chief concern is to provide a desirable store of value, a policy of fixing the exchange rate does better when shocks are primarily of domestic origin while floating becomes more desirable when foreign shocks predominate. The same is true when the government is concerned with maximizing total expected seigniorage, although more intervention is typically desirable when generating seigniorage is the major objective. When seigniorage concerns are paramount and when the monetary authority cannot establish a reputation for conducting monetary policy in a way that makes the currency a desirable store of value, a national currency may not be viable in the absence of exchange controls. Such controls may be justified in this situation.

Sufficient conditions for the existence of sunspot equilibria

This paper reports on conditions on agents' preferences and endowments sufficient to guarantee the existence of sunspot equilibria in a simple overlapping generations model of pure exchange. Sunspot equilibria are those in which uncertainty extrinsic to the economy operates through expectations to yield a fulfilled expectations competitive equilibrium in which the extrinsic randomness has real effects on prices and allocations. The paper also provides necessary and sufficient conditions for these equilibria to have agents trading in a fixed stock of valued fiat money. The condition derived can be interpreted as requiring that intertemporal income effects appropriately dominate substitution effects.

Household formation and the failure of intergenerational resource allocation

Abstract The present paper introduces a (biological) reproduction process of households into Barro's simple overlapping generations model with bequests. This leads to a model in which capital will typically be underaccumulated relative to the socially optimal level because of the coordination problem regarding bequests.

Stability in a simple pure consumption loan model

We consider a simple overlapping generation model with outside money and one consumption good. A class of price expectation functions is characterized such that the Stationary Market Equilibrium is globally stable.

Social security and savings plans in overlapping-generations models

This paper examines the impact of social security and saving plans on a simple overlapping-generations model with no uncertainty. The model is related to, and provides a reconciliation of, the Diamond and Samuelson–Gale models of public debt and public capital. Savings plans and pay-as-you-go social security are seen to have quite different effects depending on the assumptions governing the growth rates of public debt and capital, and it is also shown that the social security program proposed by Feldstein is infeasible in the steady state he adopts as a starting-point.