On the Convergence Criterion in Three-Period-Lived Overlapping Generations Models
This article considers a three-period-lived pure exchange overlapping generations econ-
omy and clarifies the role of market complementarities in the scope for Kehoe & Levine’s
convergence criterion in order to reduce the size of continuation equilibria and establish
uniqueness and determinacy. The argument is based upon the price-relatedness of dated
goods and the way the law of demand, gross substitutability and the scope for asymmet-
ric complementarities come into play when three periods lifespans are considered. The
nature of these restrictions is clarified in the context of stationary economies and the way
it relates to equilibrium continuation and Kehoe & Levine’s determinacy is made precise.
A detailed articulation between complementarities and determinacy is finally provided in
the context of Samuelson intermediate economies. The key role of dated goods spaced
one period apart and entering in an additive way is emphasised in the determinacy result
while the importance of asymetric complementarities between isolated goods spaced two
periods apart is also pointed out.
Keywords: continuation equilibria and Kehoe & Levine’s convergence criterion, determi-
nacy, indeterminacies, robustness, overlapping generations, gross substitutability, comple-
mentarity, aggregate demand, comparative statics.