Indeterminacy in stochastic overlapping generations models: real effects in the long run

Zhigang Feng and Matthew Hoelle

Economic Theory, 2017, vol. 63, issue 2, No 8, 559-585

Abstract: 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 three-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.

Keywords: OLG; Indeterminacy; Markov Equilibrium; Computation; Simulation (search for similar items in EconPapers)
JEL-codes: C63 D52 D91 E21 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (12)

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DOI: 10.1007/s00199-015-0947-y

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