A stability problem with nonstationary overlapping generations equilibria (Q1111450)

Overlapping generations models are characterized by severe market incompleteness. Future generations are unable to signal their demands on present markets. As a consequence, exogenous shifts in traders' characteristics may induce delayed reactions. The main theorem states that if preferences take a certain form every nonstationary equilibrium is subject to such delayed reactions. The proof relies on a transversal density argument. ``The possibility of delayed reactions reinforces the intuitive implausibility of nonstationary fulfilled expectations equilibria. In the absence of stationary equilibrium, disequilibrium may be a more plausible outcome than nonstationary equilibrium.'' (p. 432)