A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System

Abstract

This paper develops a two-sector overlapping-generations model. It characterizes the dynamical system globally and establishes sufficient conditions for the existence of a globally unique perfect-foresight equilibrium. It provides, therefore, a useful framework for global dynamic analysis of phenomena whose modeling requires a multidimensional commodity space. The analysis demonstrates that gross substitutability in consumption is not sufficient for the determinacy of equilibrium in this production economy. However, if in addition the investment good is capital intensive and second period consumption of two-period-lived individuals is a normal good, then the perfect-foresight equilibrium is globally unique. Copyright 1992 by The Econometric Society.