The impossibility of involuntary unemployment in an overlapping generations model with rational expectations

1992 ◽  
Vol 58 (1) ◽  
pp. 61-76 ◽  
Author(s):  
Christian Schultz
Keyword(s):  
Rational Expectations ◽  
Overlapping Generations ◽  
Overlapping Generations Model ◽  
Involuntary Unemployment

scholarly journals INDIVISIBLE LABOR SUPPLY AND INVOLUNTARY UNEMPLOYMENT: MONOPOLISTIC COMPETITION MODEL

2020 ◽  
pp. 1-14
Author(s):  
YASUHITO TANAKA
Keyword(s):  
Labor Supply ◽  
Utility Maximization ◽  
Overlapping Generations ◽  
Monopolistic Competition ◽  
Returns To Scale ◽  
Profit Maximization ◽  
Wage Rigidity ◽  
Overlapping Generations Model ◽  
Involuntary Unemployment ◽  
Constant Returns To Scale

This paper is an attempt to provide a micro-theoretical basis for Keynesian economics while maintaining as much of the neoclassical framework as possible, such as utility maximization for consumers and profit maximization for firms. We show the existence of involuntary unemployment without assuming wage rigidity when labor supplies of individuals are indivisible. We derive involuntary unemployment using an overlapping generations model under monopolistic competition with constant returns to scale technology and indivisible labor supply.

scholarly journals SELF-FULFILLING PROPHECIES AND THE BUSINESS CYCLE

1997 ◽  
Vol 1 (4) ◽  
pp. 740-769 ◽  
Author(s):  
ROGER E.A. FARMER ◽  
MICHAEL WOODFORD
Keyword(s):  
Business Cycle ◽  
Wide Class ◽  
Rational Expectations ◽  
Overlapping Generations ◽  
Phillips Curve ◽  
Signal Extraction ◽  
Overlapping Generations Model ◽  
Sunspot Equilibria ◽  
The Business Cycle ◽  
States Of Nature

We demonstrate that multiple stationary rational-expectations equilibria exist in a version of Lucas's island economy. The existence of these equilibria follows from the fact that there is an indeterminate set of monetary equilibria in the two-period overlapping-generations model. We show how to construct stationary rational-expectations equilibria by randomizing over the set of nonstationary monetary equilibria. In some of our equilibria, a positively sloped Phillips curve exists even though our economy contains no signal-extraction problem as in the original Lucas paper. Our equilibria are indexed by beliefs and are examples of the existence of sunspot equilibria in which allocations may differ across states of nature for which preferences, technology, and endowments are identical. Our technique for constructing stationary sunspot equilibria should prove useful in a wide class of models in which an indeterminate stationary equilibrium exists.

scholarly journals Negative Real Balance Effects in the Presence of Involuntary Unemployment

Ekonomika ◽  
2021 ◽  
Vol 100 (1) ◽  
pp. 54-66
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Wage Rate ◽  
Overlapping Generations ◽  
Pension System ◽  
The Other ◽  
Nominal Wage ◽  
Positive Real ◽  
Overlapping Generations Model ◽  
Real Balance ◽  
Involuntary Unemployment ◽  
Younger Generation

We examine positive or negative real balance effect (or so-called Pigou effect) by falls in the nominal wage rate and the prices of the goods in situations where there is involuntary unemployment using a three-generations overlapping generations model with childhood period and pay-as-you go pension system for the older generation consumers. We will show that if the net savings of the younger generation consumers are larger than their debts due to consumption in their childhood period, there exists positive real balance effect and the employment increases by a fall in the nominal wage rate; on the other hand, if the net savings of the younger generation consumers are smaller than their debts, there exists negative real balance effect and the employment decreases by a fall in the nominal wage rate.

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