Econometrica: Jan 2009, Volume 77, Issue 1

Virtual Determinacy in Overlapping Generations Models

https://doi.org/10.3982/ECTA5675
p. 235-247

Jonathan L. Burke

We reappraise the significance and robustness of indeterminacy in overlapping‐generations models. In any of Gale's example economies with an equilibrium that is not locally unique, for instance, perturbing the economy by judiciously splitting each of Gale's goods into two close substitutes restricts that indeterminacy to each period's allocation of consumption between those substitutes. In particular, prices, interest rates, the commodity value of nominal savings (including money), and utility levels become determinate. Any indeterminacy of equilibrium consumption in the perturbed economy is thus insignificant to consumers, and some forecasting and comparative‐statics policy exercises become possible.

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