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Overlapping Generations and Infinitely Lived Agents

Working Paper 328 | Published March 1, 1987

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Author

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S. Rao Aiyagari

Overlapping Generations and Infinitely Lived Agents

Abstract

One purpose of this article is to exposit the relationship between life cycle models (with constructive immortality) and infinitely lived agents models. We use this to point out problems in interpreting data, especially with regard to the use of interest rates in the class of representative agent models when growth in population and per capita variables is taken into account. We also point out some common misconceptions regarding the "volume of trade" in representative agent models and show how to reconcile the savings profile of the representative agent with the life cycle savings profile in a life cycle model.