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Overlapping generations model
The overlapping generations (OLG) model is one of the dominating frameworks of analysis in the study of macroeconomic dynamics and economic growth. In contrast to the Ramsey–Cass–Koopmans neoclassical growth model in which individuals are infinitely-lived, in the OLG model individuals live a finite length of time, long enough to overlap with at least one period of another agent's life.
The OLG model is the natural framework for the study of: (a) the life-cycle behavior (investment in human capital, work and saving for retirement), (b) the implications of the allocation of resources across the generations, such as Social Security, on the income per capita in the long-run, (c) the determinants of economic growth in the course of human history, and (d) the factors that triggered the fertility transition.
The construction of the OLG model was inspired by Irving Fisher's monograph The Theory of Interest. It was first formulated in 1947, in the context of a pure-exchange economy, by Maurice Allais, and more rigorously by Paul Samuelson in 1958. In 1965, Peter Diamond incorporated an aggregate neoclassical production into the model. This OLG model with production was further augmented with the development of the two-sector OLG model by Oded Galor, and the introduction of OLG models with endogenous fertility.
Books devoted to the use of the OLG model include Azariadis' Intertemporal Macroeconomics and de la Croix and Michel's Theory of Economic Growth.
The most basic OLG model has the following characteristics:
The pure-exchange OLG model was augmented with the introduction of an aggregate neoclassical production by Peter Diamond. In contrast, to Ramsey–Cass–Koopmans neoclassical growth model in which individuals are infinitely-lived and the economy is characterized by a unique steady-state equilibrium, as was established by Oded Galor and Harl Ryder, the OLG economy may be characterized by multiple steady-state equilibria, and initial conditions may therefore affect the long-run evolution of the long-run level of income per capita.
Since initial conditions in the OLG model may affect economic growth in long-run, the model was useful for the exploration of the convergence hypothesis.
The economy has the following characteristics:
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Overlapping generations model
The overlapping generations (OLG) model is one of the dominating frameworks of analysis in the study of macroeconomic dynamics and economic growth. In contrast to the Ramsey–Cass–Koopmans neoclassical growth model in which individuals are infinitely-lived, in the OLG model individuals live a finite length of time, long enough to overlap with at least one period of another agent's life.
The OLG model is the natural framework for the study of: (a) the life-cycle behavior (investment in human capital, work and saving for retirement), (b) the implications of the allocation of resources across the generations, such as Social Security, on the income per capita in the long-run, (c) the determinants of economic growth in the course of human history, and (d) the factors that triggered the fertility transition.
The construction of the OLG model was inspired by Irving Fisher's monograph The Theory of Interest. It was first formulated in 1947, in the context of a pure-exchange economy, by Maurice Allais, and more rigorously by Paul Samuelson in 1958. In 1965, Peter Diamond incorporated an aggregate neoclassical production into the model. This OLG model with production was further augmented with the development of the two-sector OLG model by Oded Galor, and the introduction of OLG models with endogenous fertility.
Books devoted to the use of the OLG model include Azariadis' Intertemporal Macroeconomics and de la Croix and Michel's Theory of Economic Growth.
The most basic OLG model has the following characteristics:
The pure-exchange OLG model was augmented with the introduction of an aggregate neoclassical production by Peter Diamond. In contrast, to Ramsey–Cass–Koopmans neoclassical growth model in which individuals are infinitely-lived and the economy is characterized by a unique steady-state equilibrium, as was established by Oded Galor and Harl Ryder, the OLG economy may be characterized by multiple steady-state equilibria, and initial conditions may therefore affect the long-run evolution of the long-run level of income per capita.
Since initial conditions in the OLG model may affect economic growth in long-run, the model was useful for the exploration of the convergence hypothesis.
The economy has the following characteristics: