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, multiplicity, 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 analyse bubbles, social security, demographic effects on stock returns, the foundations of monetary theory, Keynesian vs. real business cycle macromodels, and classical vs. neoclassical disputes.
Agent optimization Allais, M. Animal spirits Arrow–Debreu model of general equilibrium Backward induction Bubbles Cobb–Douglas functions Comparative statics Consumption loan model Continuum of equilibria Cores Demography Double coincidence of wants Equilibrium Existence of equilibrium Expectations sensitivity hypothesis Impatience Incomplete markets Indeterminacy of equilibrium Infinite horizons Involuntary unemployment Keynesianism Marginal utility of money Market clearing Money Multiple equilibria New classical macroeconomics Numeraire Overlapping generations models of general equilibrium Pareto efficiency Pareto inefficiency Perfect foresight Price normalization Samuelson, P. A. Sequential equilibrium Social security Sraffa, P. Sunspots Uncertainty Uniform impatience Uniqueness of equilibrium
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