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Indeterminacy in Stochastic Overlapping Generations Models: Real Effects in the Long Run
Economic Theory
  • Zhigang Feng, University of Nebraska at Omaha
  • Matthew Hoelle, Purdue University
Document Type
Article
Publication Date
12-1-2015
Disciplines
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.

Citation Information
Zhigang Feng and Matthew Hoelle. "Indeterminacy in Stochastic Overlapping Generations Models: Real Effects in the Long Run" Economic Theory Vol. 63 Iss. 2 (2015) p. 559 - 585
Available at: http://works.bepress.com/zhigang-feng/4/