Regularity of a general equilibrium in a model with infinite past and future (Q684161): Difference between revisions

The authors develop the conditions for ensuring the possibility of performing comparative statics in the overlapping generations' general equilibrium model, which is a variant of the model from \textit{J.-F. Mertens} and \textit{A. Rubinchik} [Econ. Theory 54, No. 3, 537--595 (2013; Zbl 1347.91197)]. Consumers of the model have time-separable, positively homogeneous life-time utility, and the production-side represented via a two-factor twice differentiable linear homogeneous (constant-return-to-scale) production function. An individual's objective is the maximization of her/his life-time utility, which is defined by life-time consumption, with the budget constraint, which depends on the transfer to the individual, the wage rate, and the life-cycle productivity. Transfers to individuals are the exogenous (policy) parameter of the model. A competitive equilibrium is thought in classical form with all the agents choosing the best allocations given the prices and the ownership rights, while all the markets clear. The equilibrium conditions is reduced to a fixed-point equation \(F(k,E) \mathop{=}\limits^{\Delta} \Gamma(k,E) - k = 0\) where an equilibrium variable \(k\) is a continuous bounded function of time, and the policy parameter \(E\) is a locally integrable function of time. The possibility of performing comparative statics to the implicit dependence \(k(E)\) is ensured by the conditions of an implicit function theorem. It is shown that these conditions are time invariance of operator \(\Gamma\) and the requirement that unity does not belong to the spectrum of the derivative of the operator with respect to \(k\). These conditions are presented in terms of the considered equilibrium problem.