Price dynamics in overlapping generations environments

Summary

This work examines the existence, uniqueness and computation of competitive equilibria in a class of overlapping generations environments. This set of environments represents a broad generalization of the overlapping generations model considered by Aliprantis and Plott [1]. Two types of results are presented in this paper. First, some general characteristics of perfect foresight competitive equilibrium price paths are developed for economies with finite or countably infinite time horizons and agents with finite lifetimes. The results establish the conditions leading to locally monotonic and locally stable equilibrium prices given arbitrarily many exogenous parameter shifts. Second, these results are strengthened when consideration is focused on a single parametric shift in a finite economy. Existence of a unique equilibrium price path is established. A simple set of rules are given to facilitate computation of this price path for any given shift.