Rational expectations in the overlapping generations model (Q1064955)

The author reports results on the character of the rational expectations equilibria of a stochastic overlapping generations model with heterogeneous markets. It is shown that the rational expectations equilibrium stochastic process of prices and allocations must exhibit serial correlation for a generic class of preferences as long as there are more than one commodities traded in every period. The main ingredients of the model (in distinction to one commodity models) are behavioral lags introduced through agents preferences, i.i.d. shocks to endowments as well as finite life-cycle characteristics implied by the overlapping generations model. The overlapping generations approach, as opposed to infinite-lived agents models, allows for an alternative view of the role of preferences in generating serially correlated equilibria, for a greater generality in the specification of lags, and it allows to understand more deeply the peculiar problem of the budgetary constraints on equilibrium in one commodity models.