We introduce aggregate uncertainty and complete markets into Blanchard's perpetual youth model. We derive a simple expression for the pricing kernel that can be used to close a variety of equilibrium models in which the set of agents changes over time. We explore the link between wealth inequality and output fluctuations in a general two-sector neoclassical growth model with endogenous labor and heterogeneous agents.
When agents have homogeneous CRRA preferences and individual wealth is Pareto distributed, a sufficiently large rise in the Gini index typically leads to an increase in endogenous fluctuations of output. For general economies, we show that under plausible conditions on the fundamentals, wealth inequality is still a destabilizing factor. In this paper, we consider a two-sector two-periods overlapping generations model with inelastic labor, consumption in both periods of life, endogenous discounting and homothetic preferences.
We prove that under the assumption of under-accumulation of capital, an economy with endogenous discounting depending on income is much more likely to experience macroeconomic fluctuations compared to an economy with constant discounting.
We consider a two-sector overlapping generations model with homothetic preferences. Under standard conditions on technologies, upon large enough values for the share of first period consumption over the wage income, we prove that the dynamic efficiency and local uniqueness of the competitive equilibrium hold.
On the contrary, for lower values of the share of first period consumption over the wage income which imply dynamic inefficiency of the steady state, local indeterminacy arises when the elasticity of intertemporal substitution in consumption is large enough. In this paper, we study the occurrence of local indeterminacy in two-sector monetary economies.
