A family production overlapping generations economy

This paper provides a theoretical analysis of an overlapping generations economy in which production decisions and input–output allocations are all carried out at the family level. I consider a single class of output allocation schemes and various degrees of knowledge about the production technology. Under complete knowledge, I show that a family organizational structure in which everyone receives his marginal contribution to output, invests less in physical capital than under a perfectly competitive equilibrium environment. Under incomplete knowledge, I analyze and compare how beliefs about the input–output relationship affect the physical capital accumulation dynamics and the long-run standards of living.     

Active intermediation in a monetary overlapping generations economy

This paper establishes that the profit-seeking activities of private intermediaries can ensure Pareto efficiency in the standard pure-exchange monetary overlapping generations economy without the need for government monetary or fiscal policy intervention. Moreover, these profit-seeking activities are shown to rule out all aperiodic and k-periodic cycles for k greater than 2. Contrary to much recent work on intermediation, the profit opportunities that arise for intermediaries in this context are not due to assumed frictions or asymmetric information. Rather, they are due to the dynamic open-ended structure of the economy, which permits debt roll-over.     

Finitely additive exchange economies

It is shown that the core and the set of Walras allocations of a non-atomic exchange economy are equal, if the set A of agents is either countable or a continuum, and even if all subsets of A are admitted as coalitions. The set of Walras allocations is shown to be not empty. These results are obtained by use of finitely additive measures defined on the algebra of all subsets of A.     

Walrasian social orderings in exchange economies

We study social ordering functions in exchange economies. We show that if a social ordering function satisfies certain Pareto, individual rationality, and local independence conditions, then (i) the set of top allocations of the chosen social ordering is contained in the set of Walrasian allocations and is typically non-empty, and (ii) all individually rational but non-Walrasian allocations are typically ranked indifferently. Thus, such a social ordering function is quite similar to the Walrasian correspondence, which can be regarded as the social ordering function whose associated indifference classes are the set of Walrasian allocations and the set of other allocations.     

Relational consumption and nonlinear dynamics in an overlapping generations model

In this paper, we show that incorporating the relational dimension into an otherwise standard OLG model and focusing on dynamic leisure externalities leads to dramatically different predictions. Here, we show that when the old perceive private and relational consumption as substitutable goods, a series of interesting dynamic outcomes—such as local indeterminacy, nonlinear phenomena (including chaotic dynamics) and even multiple equilibria with global indeterminacy—may arise. We also draw some welfare implications and relate them to the well-known “happiness paradox” arising within contemporary affluent societies.     

Consistent collusion-proofness and correlation in exchange economies

We present a feasible strategic market mechanism with finitely many agents whose Nash, semi-strong Nash and coalition-proof Nash equilibria fully implement the Walrasian equilibria. We define a strategic equilibrium concept, called correlated semi-strong equilibrium, and show that the Walrasian equilibria can be implemented by these equilibria, and also by the coalition-proof correlated equilibria of our mechanism. We show that these two concepts, suitably modified with transfers, fully implement the Pareto optimal allocations.     

Local determinacy of prices in an overlapping generations model with continuous trading

We characterize the determinacy properties of the intertemporal equilibrium for a continuous-time, pure-exchange, overlapping generations economy with logarithmic preferences. Using recent advances in the theory of functional differential equations, we show that the equilibrium is locally unique and that prices converge to a balanced growth path and are determined.     

An overlapping generations model with non-ordered preferences and numeraire-incomplete markets*

Abstract This paper shows that, even with a life-cycle component, the standard model of competitive consumption and asset trading can be extended to encompass general preference relations, which do not necessarily hinge upon special assumptions such as time or state separability, or even completeness or transitivity. More precisely, this paper addresses the equilibrium existence for an overlapping generations pure-exchange economy with non-ordered preferences and incomplete financial markets of numeraire assets. Mathematics Subject Classification (2000): 91B50, 91B62 Journal of Economic Literature Classification: D52, D91     

Arbitrage and equilibrium in unbounded exchange economies with satiation

In his seminal paper on arbitrage and competitive equilibrium in unbounded exchange economies, Werner (1987) proved the existence of a competitive equilibrium, under a price no-arbitrage condition, without assuming either local or global nonsatiation. Werner’s existence result contrasts sharply with classical existence results for bounded exchange economies which require, at minimum, global nonsatiation at rational allocations. Why do unbounded exchange economies admit existence without local or global nonsatiation? This question is the focus of our paper. First, we show that in unbounded exchange economies, even if some agents’ preferences are satiated, the absence of arbitrage is sufficient for the existence of competitive equilibria, as long as each agent who is satiated has a nonempty set of useful net trades– that is, as long as agents’ preferences satisfy weak nonsatiation. Second, we provide a new approach to proving existence in unbounded exchange economies. The key step in our new approach is to transform the original economy to an economy satisfying global nonsatiation such that all equilibria of the transformed economy are equilibria of the original economy. What our approach makes clear is that it is precisely the condition of weak nonsatiation – a condition considerably weaker than local or global nonsatiation – that makes possible this transformation.     

De facto and official exchange rate regimes in transition economies

This paper provides an empirical investigation on the discrepancies between official and de facto exchange rate regimes in transition economies. We use a probit model to describe the determination of regime discrepancies. We find that “errors” in the selection of official regimes as well as the macroeconomic developments calling for conflicting adjustments in exchange rate regimes are important determinants of regime discrepancies.     

On the long-run relationship between inflation and output in a spatial overlapping generations model

The paper builds a model that features spatial differentiation of markets, and then uses it to study, first, the relationship between inflation and the steady-state level of output, and second, the relationship between inflation and the steady-state distribution of output across the economy. A steady-state of the model entails a stationary distribution of money across the locations of the economy. With all else held fixed, a change in the rate of money-growth induces a change in the distribution of money, which leads to a change in labour supply and production throughout the economy. Thus the distribution of money provides a channel through which a change in monetary policy affects real economic activity.     

Income growth in the 21st century: Forecasts with an overlapping generations model

We forecast income growth over the period 2000–2050 in the US, Canada, and France. To ground the forecasts on relationships that are as robust as possible to changes in the environment, we use a quantitative theoretical approach which involves calibrating and simulating a general equilibrium model. Compared to existing studies, we allow for life uncertainty and migrations, use generational accounting studies to link taxes and public expenditures to demographic changes, and take into account the interaction between education and work experience. Forecasts show that growth will be weaker over the period 2010–2040. The gap between the US and the two other countries is increasing over time. France will catch-up and overtake Canada in 2020. Investigating alternative policy scenarios, we show that increasing the effective retirement age to 63 would be most profitable for France, reducing the gap between it and the US by one third. A decrease in social security benefits would slightly stimulate growth but would have no real impact on the gap between the countries.     

Demographic structure and overlapping generations: A simpler proof with more general conditions

d’Albis (2007) considers a continuous-time general equilibrium overlapping-generations model with age-specific mortality rates. His proof of the existence and uniqueness of the steady-state equilibrium, which can be extended to other overlapping-generations models, relies on the shape of a function that appears in the equation defining the equilibrium. By focusing on the mean age as a function of the stable population growth rate instead of the function used in d’Albis (2007), we provide a simpler proof with more general conditions. We also obtain useful properties about the first and second derivatives of the mean age function that can be applied in future work.     

The hybrid equilibria and core selection in exchange economies with externalities

This paper introduces a hybrid equilibrium concept that combines the elements of cooperative and non-cooperative behaviors in an exchange economy with externalities. For a fixed coalition structure (or a partition of traders), the hybrid equilibrium is a price and consumption bundle such that each coalition chooses a core solution from its budget set and the consumption bundles are feasible. It becomes the competitive equilibrium when the position is the finest, and it selects a core allocation when the partition is the coarsest. The paper provides sufficient conditions for the existence of a hybrid equilibrium for any coalition structure.     

Edgeworth rejective core and dividends equilibria of satiated exchange economies

For an exchange economy, under assumptions which did not bring about the existence of equilibrium with dividends as yet, we prove the non-emptiness of the Edgeworth rejective core. Then, via  and ’s decentralization result, we solve the equilibrium with dividends existence problem. Adding to the same assumptions a weak non-satiation condition which differs from the weak non-satiation assumption introduced by Allouch and Le Van (2009), we show in the last section the existence of a Walrasian quasiequilibrium. This result, which fits with exchange economies whose consumers’ utility functions are not assumed to be upper semicontinuous, complements the one obtained by Martins-da-Rocha and Monteiro (2009).     

Capital inflows,exchange market pressure,and credit growth in four transition economies with fixed exchange rates

With the transition from planned economic systems to membership in the European Union, capital inflows and domestic credit have expanded tremendously in Central and Eastern Europe. Four of these countries—Estonia, Latvia, Lithuania, and Bulgaria—maintain fixed exchange-rate regimes, which may face pressure because of rapid credit growth or during a slowdown. This study uses a Vector Autoregressive (VAR) approach to assess the contribution of capital inflows to exchange market pressure in these four countries, as well as to the growth of domestic credit. Both FDI and non-FDI flows are shown to feed credit growth in Bulgaria, but not the Baltics. Relatively volatile flows, particularly non-FDI inflows, reduce EMP in three of the four countries.     

Active intermediation in a monetary overlapping generations economy

This paper establishes that the profit-seeking activities of private intermediaries can ensure Pareto efficiency in the standard pure-exchange monetary overlapping generations economy without the need for government monetary or fiscal policy intervention. Moreover, these profit-seeking activities are shown to rule out all aperiodic and k-periodic cycles for k greater than 2. Contrary to much recent work on intermediation, the profit opportunities that arise for intermediaries in this context are not due to assumed frictions or asymmetric information. Rather, they are due to the dynamic open-ended structure of the economy, which permits debt roll-over.     

Noise trading and autocorrelation interactions in the foreign exchange market: Evidence from developed and emerging economies

This paper seeks to empirically determine whether feedback trading strategies result in stabilization or destabilization in the foreign exchange market and if such strategies are a distinctive characteristic of an emerging economy or they are a common element to both developed and emerging economies. These hypotheses are tested via the use of a feedback model augmented with a generalized autoregressive conditional heteroskedasticity (GARCH) process for modeling the errors. The results suggest presence of both positive and negative feedback trading and asymmetric behavior in both types of economies. Irrespective of the nature of feedback trading, presence of asymmetric behavior implies that market traders rely on central banks to intervene so they can realize short-term profits. Finally, in cases of a positive first-order autoregressive parameter presence of the bandwagon effect is implied, whereby past currency movements are followed by expectations of currency movements in the same direction.