Stationary Markov Equilibria in an OLG Model with Correlated Production Shocks

Yong Wang ()

International Economic Review, 1994, vol. 35, issue 3, 731-44

Abstract: In this paper, the author examines the existence of stationary equilibria in an overlapping generations model where production shocks are correlated over time. In general, the system is complicated by dynamic indeterminacy and possibility of sunspot equilibria. However, there exists a time-homogeneous Markov process of the state variable that represents a nonsunspot dynamic equilibrium. The long-run analysis establishes a sufficient condition for the existence of a nontrivial stationary equilibrium. Moreover, it is shown that the conventional restrictions on the production function are not sufficient to prevent the economy from converging to zero production and consumption. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1994
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