Overlapping Generations

This chapter covers the overlapping generations models (OLG). The first section introduces an infinite-life overlapping generations model, in which at each moment a generation is born with no financial assets and, therefore, disconnected from the existing generations. The second section introduces the government into this economy and analyzes the question of Ricardian equivalence. The third section shows that the overlapping generations model, unlike the representative agent model, can be applied to a small open economy without the need for any ad hoc assumptions. The fourth section derives the OLG model’s new Keynesian IS curve. The fifth section shows a finite-life overlapping generations model. This model uses the simplifying assumption that an individual’s probability of death is independent of their age. The sixth section analyzes the two systems of social security, the fully funded and the pay-as-you-go system.