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Local Dynamics under Perfectly Flexible Wages

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  • Marco Guerrazzi

Abstract

This paper provides an analysis of the local dynamics implied by the perfectly flexible wage 2-period OLG model proposed in Hahn - Solow (1995). Specifically, by distinguishing between the consumption choices arising from a Cobb-Douglas and a CES utility function, we discuss the conditions for existence and uniqueness of the stationary solution. Thereafter, by reducing the underlying dynamics to adjustments of the real interest rate, we discuss the conditions for local stability. Moreover, for each case, we show that this model may display a stable "barter version" in which the financial assets issued by firms are not "barren" assets.

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  • Marco Guerrazzi, 2007. "Local Dynamics under Perfectly Flexible Wages," Economia politica, Società editrice il Mulino, issue 2, pages 265-288.
    • Handle: RePEc:mul:jb33yl:doi:10.1428/24822:y:2007:i:2:p:265-288
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    Cited by:

    1. Marco Guerrazzi, 2022. "How Long does a Generation Last? Assessing the Relationship Between Infinite and Finite Horizon Dynamic Models," Economic Papers, The Economic Society of Australia, vol. 41(1), pages 89-98, March.

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