Publication Date: May 2008
The OLG model of Allais and Samuelson retains the methodological assumptions of agent optimization and market clearing from the Arrow-Debreu model, yet its equilibrium set has diﬀerent properties: Pareto ineﬀiciency, indeterminacy, positive valuation of money, and a golden rule equilibrium in which the rate of interest is equal to population growth (independent of impatience). These properties are shown to derive not from market incompleteness, but from lack of market clearing “at inﬁnity;” they can be eliminated with land or uniform impatience. The OLG model is used to analyze bubbles, social security, demographic eﬀects on stock returns, the foundations of monetary theory, Keynesian vs. real business cycle macromodels, and classical vs. neoclassical disputes.
Demography, Ineﬀiciency, Indeterminacy, Money, Bubbles, Cycles, Rate of interest, Impatience, Land, Inﬁnity, Expectations, Social security, Golden rule
JEL Classification Codes: D1, D3, D5, D6, D9, E11, E12, E13, E2, E3, E4, E6
See CFP: 1275