Gross substitutability in large-square economies (Q1178807)

This paper investigates the implications of gross substitutability of excess demand functions for the equilibria of exchange economies with countably many goods and arbitrarily many consumers. The uniqueness theorem is first proved for general economies with finite aggregate wealth. The theorem is then extended to overlapping generations economies where the finite wealth condition is not satisfied. It is then shown that the uniqueness theorem still holds if the economy has a single-ended infinity, that is, if it extends to \(\infty\) from a well- defined beginning at time one, rather than from \(-\infty\). Sections 3-5 consider the case of stationary overlapping generations economies. It is shown that the nominal steady state (where the inflation factor is one) and real steady state (where the amount of nominal debt transferred from one generation to the next is equal to zero) exist and are unique. It is further shown that the stationary economies fall into three possible cases: (1) The classical case: prices fall at a constant rate in the real steady state and the amount of nominal debt transferred from the old to the young is negative in the nominal steady state. (2) The Samuelson case: prices rise at a constant rate in the real steady state and the value of nominal debt transferred is positive in the nominal steady state. (3) The coincidental case: the real and the nominal steady states are the same. The paper further shows that the equilibrium trajectories satisfy strong turnpike properties, and gross substitutability rules out chaotic cyclical behavior along the equilibrium price path. The final section extends the above results to a stationary overlapping generations model with land, which yields a constant positive quantity of perishable consumption good.