Intertemporal separability in overlapping-generations models (Q2265937): Difference between revisions

It is known from earlier work that in a pure exchange overlapping generations model with two period lived consumers and a single consumption good, there are a finite number of perfect foresight equilibria along which money has no value. If money has value, then there is at most one dimension of indeterminacy. This result may hold when one considers many goods in each of the two periods only under certain stringent restrictions such as single consumer with preferences separable between the two periods of his life. The present paper analyzes the precise features of the separable preferences in the two period case which are responsible for the result stated at the beginning. It is shown that these results hold locally near the steady state of a stationary economy in which two period lived consumers are 'almost' identical and have 'almost' separable preferences. Also, if there are no large income effects, the same conclusions follow.