Overlapping Generations Models, Multiplicity of Steady States and Momentary Equilibria, and Economic Fluctuations

This paper examines the simplest OLG models with capital accumulation, demonstrating three results that stand in marked contrast to those of the standard model: first, the possibility of multiple steady states; second, the possibility of multiple momentary equilibria under rational expectations; third, one of implications of multiple momentary equilibria is that dynamics may be marked by complex fluctuations (lacking even periodicity), but still within well-defined bounds. We provide quite general conditions (with general utility and production functions) under which in the simplest of OLG models, there can be multiple steady states, multiple momentary equilibria, and complex dynamics. Furthermore, we present a simple illustration of wobbly growth by incorporating credit friction.