On the convergence criterion in three-period lived overlapping generations models

Jean-Paul Barinci (), Hye-Jin Cho () and Jean-Pierre Drugeon ()
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Jean-Paul Barinci: Université Paris-Saclay, Univ Evry
Hye-Jin Cho: Durham University
Jean-Pierre Drugeon: CNRS-PSE

Economic Theory, 2025, vol. 80, issue 2, No 6, 563 pages

Abstract: Abstract This paper offers a novel perspective on Kehoe-Levine’s convergence criterion for equilibrium determinacy in three-period overlapping generations (OLG) models. Departing from their primary focus on gross substitutability, our central contribution is demonstrating that equilibrium determinacy, even in Samuelson economies, can be achieved under market complementarities, provided the aggregate demand sensitivities to adjacent-period prices sum positively. Furthermore, we identify critical conditions where gross substitutability or complementarities between goods spaced two periods apart becomes pivotal for equilibrium determination. By elucidating the role of asymmetric complementarities, we significantly extend the understanding of equilibrium determinacy within the Kehoe-Levine framework, challenging the necessity of strict gross substitutability and offering a more nuanced view of dynamic stability in OLG models.

Keywords: Overlapping generations (OLG); Equilibrium determinacy; Indeterminacy; Market complementarities; Gross substitutability; Kehoe-Levine criterion; Samuelson economies; Three-period OLG model; Aggregate demand; Dynamic systems (search for similar items in EconPapers)
JEL-codes: C62 D01 D11 D91 E21 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s00199-025-01665-1

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