Short-memory equilibrium in stochastic overlapping generations economies

Alessandro Citanna, Paolo Siconolfi

Research output: Contribution to journalArticle

Abstract

In stochastic OLG exchange economies, we show that short-memory equilibria-the natural extension from deterministic economies of steady states, low-order cycles, or finite state-space stationary sunspots equilibria-fail to exist generically in utilities. As a result, even with independent and identically distributed exogenous shocks there is serial correlation in endogenous economic variables in equilibrium. This arises even if utilities are time-separable, some goods inferior, and there are no technological lags. Hence, the origins of economic fluctuations can be traced only to the demographic structure of a heterogeneous agent, multiple-good economy.

Original languageEnglish (US)
Pages (from-to)448-469
Number of pages22
JournalJournal of Economic Theory
Volume134
Issue number1
DOIs
StatePublished - May 1 2007

Fingerprint

Overlapping generations
Exchange economy
Heterogeneous agents
Economic fluctuations
Sunspot equilibria
Serial correlation
Exogenous shocks
Economic variables
Demographic structure
Lag
State space

Keywords

  • Equilibrium
  • Overlapping generations
  • Real business cycle

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Short-memory equilibrium in stochastic overlapping generations economies. / Citanna, Alessandro; Siconolfi, Paolo.

In: Journal of Economic Theory, Vol. 134, No. 1, 01.05.2007, p. 448-469.

Research output: Contribution to journalArticle

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