Robustness of equilibria in stochastic OLG economies

Abstract

The Overlapping-Generations (OLG) model was first introduced by Allais [1] and Samuelson [2]. It is one of the major developments for dynamic modelling of economies. This OLG model has also been extended to stochastic economies with incomplete markets and economies with production. In general, the notion of competitive equilibria in dynamic economies as propounded by Arrow and Debreu [3],[4] allows for prices and allocations to depend on histories of arbitrary length which disrupts the notion of rational expectations equilibria [5] as well as approximation of solutions for real-life applications. To address these issues, Duffie et. al. [6] proposed a general theorem for the existence of stationary Markov equilibria for OLG economies. We refer the reader to [7] for a general treatment of recursive equilibria in stochastic OLG economies.