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Determinate perfect foresight forecasting in overlapping generations models

Author

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  • Eungsik Kim

    (University of Kansas)

  • Stephen E. Spear

    (Carnegie Mellon University)

Abstract

In this paper, we show the existence of the perfect foresight forecast functions which generate unique and stable equilibrium price dynamics for comparative static analysis and calibration in multi-period overlapping generations models with cohort heterogeneity, multiple goods, and fiat money. We also show how to recover such forecast functions up to the first order using the eigenvalues and eigenvectors of the Jacobian matrix of the equilibrium conditions. In a special one good case, our construction of the forecast functions requires information about only the eigenvalues. In addition, we demonstrate that the stable subspace where the price sequences generated by the linearized forecast functions exist is also an invariant cyclic subspace.

Suggested Citation

  • Eungsik Kim & Stephen E. Spear, 2021. "Determinate perfect foresight forecasting in overlapping generations models," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(2), pages 505-531, March.
    • Handle: RePEc:spr:joecth:v:71:y:2021:i:2:d:10.1007_s00199-020-01254-4
    DOI: 10.1007/s00199-020-01254-4
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    References listed on IDEAS

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    Cited by:

    1. Eugeni, Sara, 2024. "Nominal exchange rates and net foreign assets' dynamics: The stabilization role of valuation effects," Journal of International Money and Finance, Elsevier, vol. 141(C).

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    More about this item

    Keywords

    Perfect foresight forecasts; Determinacy of equilibrium; Overlapping generations models; Multi-periods; Multi-goods;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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