Trend-reverting fluctuations in the life-cycle model |
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Authors: | Costas Azariadis Lee Ohanian |
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Institution: | a Bunche Hall 8377, Department of Economics, University of California at Los Angeles, Box 951477, Los Angeles, CA 90095-1477, USA b Research Department, Federal Reserve Bank of St. Louis, 411 Locust Street, St. Louis, MO 63102, USA c Bunche Hall 8391, Department of Economics, UCLA, Box 951477, Los Angeles, CA 90095-1477, USA |
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Abstract: | Aggregate time series provide evidence of short-term dynamic adjustment that appears to be governed by complex or negative real eigenvalues. This finding is at odds with the predictions of reasonably parameterized, convex one-sector growth models with complete markets. We study life-cycle economies in which aggregate saving depends non-trivially on the distribution of wealth among cohorts. If consumption goods are weak gross substitutes near the steady-state price vector, we prove that the unique equilibrium of a life-cycle exchange economy converges to the unique non-monetary steady state via damped oscillations. We also discuss examples and extensions. |
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Keywords: | E0 E3 |
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