This paper extends the standard Diamond’s two-period OLG model of capital accumulation by introducing labor–leisure choice into the first-period of agents’ life. Under the assumption of gross substitutability, we show that multiple intertemporal equilibria require both highly complementary inputs and a low fraction of consumption out of wage income by the young generation. On the contrary, if capital and labor are sufficiently substitutable, or if young agents consume a realistically large proportion of their wage income, multiple intertemporal equilibria and, therefore, endogenous fluctuations driven by self-fulfilling beliefs, are ruled out. We further illustrate, in contrast with the related literature, that intertemporal substitution in consumption across periods is a critical mechanism which enables short-lived agents to arbitrage away expectationally driven fluctuations when the ratio between saving and wage is reasonably low. As a result, the OLG model’s predictions are substantially similar to the usual optimal growth model.
|Data di pubblicazione:||2004|
|Titolo:||Robustness of multiple equilibria in OLG economies|
|Rivista:||REVIEW OF ECONOMIC DYNAMICS|
|Digital Object Identifier (DOI):||http://dx.doi.org/10.1016/j.red.2003.10.001|
|Appare nelle tipologie:||2.1 Articolo su rivista |
File in questo prodotto:
|1-s2.0-S1094202503000905-main.pdf||Abstract||Licenza non definita||Riservato|