Indeterminacy in Stochastic Overlapping Generations Models: Real Effects in the Long Run

Authors

Zhigang Feng, University of Nebraska at OmahaFollow
Matthew Hoelle, Purdue University

Document Type

Article

Publication Date

12-2015

Publication Title

Economic Theory

Volume

63

Issue

2

First Page

559

Last Page

585

Abstract

Indeterminate equilibria are known to exist for overlapping generations models, though recent research has been limited to deterministic settings in which all equilibria converge to a steady state in the long run. This paper analyzes stochastic overlapping generations models with 3-period lived representative consumers and adopts a novel computational algorithm to numerically approximate the entire set of competitive equilibria. In a stochastic setting with incomplete markets, indeterminacy has real effects in the long run. Our numerical simulations reveal that indeterminacy is an order of magnitude more important than endowment shocks in explaining long-run consumption and asset price volatility.

Comments

The final publication is available at Springer via https://link.springer.com/article/10.1007/s00199-015-0947-y.

Recommended Citation

Feng, Zhigang and Hoelle, Matthew, "Indeterminacy in Stochastic Overlapping Generations Models: Real Effects in the Long Run" (2015). Economics Faculty Publications. 18.
https://digitalcommons.unomaha.edu/econrealestatefacpub/18