Overlapping Generations

Abstract

This chapter presents the overlapping generations (OLG) model. Section 1 introduces an infinite-life OLG model where, at each moment, a generation is born with no financial assets and is, therefore, disconnected from existing generations. Section 2 introduces the government into this model and analyzes the question of Ricardian equivalence. Section 3 shows that the OLG model, unlike the representative agent model, can be applied to a small open economy without the need for any ad hoc assumptions. Section 4 derives the OLG model’s new Keynesian IS curve. Section 5 shows a finite-life OLG model. This model uses the simplifying assumption that an individual’s probability of death is independent of their age.