Optimality and monetary equilibria in stationary overlapping generations models with long-lived agents: Growth versus discounting (Q1092787)

This paper studies the relationship between the existence and optimality of a monetary steady state and the nonoptimality of nonmonetary steady states. We construct a sequence of stationary overlapping generations economies with longer and longer-lived generations in which all agents maximize a discounted sum of utilities with a common discount rate. Under some assumptions the following result is established: If the discount rate is greater (less) than the population growth rate, then eventually every nonmonetary steady state is optimal (nonoptimal) and a monetary steady state does not exist (exists and is optimal).