Overlapping generations model: Difference between revisions

Revision as of 06:17, 25 October 2015

Revision as of 10:30, 25 October 2015

Line 18:

::<math> N_t^t = (1+n)^t </math>

*ThereIn isthe only"pure oneexchange goodeconomy" inversion thisof economythe model, there is only one physical good and it cannot endure for more than one period. Each individual receives a fixed endowment of this good at birth. This endowment is denoted as ''y''.

*In the "production economy" version of the model (see Diamond OLG model below), the physical good can be either consumed or invested to build physical capital. Output is produced from labor and physical capital. Each household is endowed with one unit of time which is inelastically supply on the labor market.

*Each individual receives a fixed endowment of this good at birth. This endowment is denoted as ''y''. This endowment of goods can also be thought of as an endowment of labor that the individual uses to work and create a [[real vs. nominal in economics|real]] [[income]] equal to the value of good ''y'' produced. Under this framework, individuals only work during the ''young'' phase of their life.

*Preferences over consumption streams are given by

::<math> u(c_t^t,c_t^{t+1}) = U(c_t^t) + \beta U(c_t^{t+1}),</math>