On the Woodford Reinterpretation of the Reichlin OLG Model: A Reconsideration

Guido Cazzavillan and Francesco Magris

No 01-11, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: In this paper we investigate whether competitive equilibrium dynamics similar to those generated in a non-monetary two-period overlapping generations model, such as that studied by Reichlin [4], can result in a monetary framework with infinite-lived workers and capitalists from the existence of a cash-in-advance constraint on workers’ consumption purchases, as in Woodford [6]. In contrast with the reinterpretation of the OLG framework provided by the latter author, we show that the existence of finance constraints in the monetary infinite horizon model of that type can never result, generically, in equilibrium dynamics “similar” (or equal) to those obtained from a non-monetary two-period overlapping generations model where people work when young and consume when old. In particular, we prove that the parameter configurations leading to local indeterminacy and stochastic endogenous fluctuations in either model necessarily imply local determinacy and the absence of sunspot equilibria in the other.

JEL-codes: C62 E32 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2001
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