Stationary markov equilibria in an olg model with correlaterd production shocks

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review

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Original languageEnglish
Pages (from-to)731-744
Journal / PublicationInternational Economic Review
Volume35
Issue number3
Publication statusPublished - 1994
Externally publishedYes

Abstract

In this paper, we examine the existence of stationary equilibria in an overlapping generations model where production shocks are correlated over time. In general, the system is complicated by dynamic indeterminacy and possibility of sunspot equilibria. However, there exists a time-homogeneous Markov process of the state variable which represents a nonsunspot dynamic equilibrium. The long-run analysis establishes a sufficient condition for the existence of a nontrivial stationary equilibrium. Moreover, it is shown that the conventional restrictions on the production function are not sufficient to prevent the economy from converging to zero production and consumption.