Indeterminacy of Stationary Equilibrium in Stochastic Overlapping Generations Models*

In this paper, we consider the local uniqueness properties of stationary rational expectations equilibria (REE) in a stochastic overlapping generations (OLG) model. It is known that in non-stochastic OLG models, steady-state equilibria are locally isolated, although there may exist indeterminate non-stationary perfect foresight equilibria. We show by construction that in the stochastic model, even stationary equilibrium may be indeterminate. We also show that this result is robust in the sense that there exists a non-empty open set of economies for which the result is true. Journal u/ Economic Literature Classilication Numbers: 021, 023, 131. 1,” 1990 Academic Press. lnc