CFDP 1663

Overlapping Generations Models of General Equilibrium


Publication Date: May 2008

Pages: 40


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