Overlapping Generations Model with Endogenous Labor Supply: General Formulation
This paper develops a one-sector overlapping generations model with endogenous labor supply and nonseparable preferences. It demonstrates that local indeterminacy arises easily under gross substitutability as soon as there exist multiple steady states. We show also that, depending on whether leisure and second-period consumption are gross substitutes, local indeterminacy holds for very different parameter configurations. If gross substitutability is satisfied, the existence of multiple equilibrium paths requires the share of capital in the total income to be strong enough with respect to the elasticity of capital-labor substitution. On the other hand, if gross substitutability is violated, local indeterminacy necessitates the share of capital in the total income to be weak enough with respect to the elasticity of capital-labor substitution.
KeywordsIndeterminacy endogenous cycles overlapping generations endogenous labor supply
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