Generic Virtual Determinacy among Overlapping Generations

Abstract: We reappraise the significance of indeterminacy in overlappinggenerations models. In any of Gale’s examples of locally-indeterminate (nonlocally-unique) equilibrium, for instance, judiciously splitting each of Gale’s goods into 2 close substitutes restricts that indeterminacy to each period’s distribution of consumption between those substitutes. In particular, prices, interest rates, and utility levels are now determinate. Equilibrium is thus virtually determinate (virtually locally unique), and some forecasting and comparative-statics policy applications are now possible. Virtual determinacy is robust to further splitting goods, and is thus generic, holding for each economy in some opendense set in an appropriate topological space.