Assessing Aggregate Tests of Efficiency for Dynamic Economies

Barbie, Martin; Hagedorn, Marcus; Kaul, Ashok

doi:10.2202/1534-5998.1207

Cited by 25 publications

(32 citation statements)

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“…This was the implicit assumption in my analysis above. It also conforms to the academic literature (Diamond (1965), von Weizsäcker (1979), Tirole (1985, Gale (1990), Blanchard and Weil (2001), Barbie, Hagedorn and Kaul (2004)). …”

Section: Ponzi and All Thatsupporting

confidence: 86%

Public Debt Requirements in a Regime of Price Stability

Weizsäcker

Christian²

2011

SSRN Journal

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Abstract. The logic of this paper is based on a modernisation of Austrian capital theory as applied to a closed economy growing in a steady state. Here the philosophy is this: capital is time embodied in produced goods. In steady states, this philosophy works well as an aggregation device for an arbitrary number of distinct produced goods. The basic theorem of this approach (Section VII) is this: in a capital market equilibrium without public debt and hence in a general equilibrium without public debt the average period of production equals the average waiting period of households. Calibration of the parameters of the production sector and the consumption sector then leads to the result that the equilibrium risk free real rate of interest (Wicksell´s "natural rate of interest") is negative for the OECD+China area. What distinguishes the twenty-first century from earlier times is the high life expectancy of people and the ensuing extensive average pension period. These characteristics are responsible for the high average waiting period. Only with a negative real rate of interest can the average period of production catch up with the high average waiting period.Under price stability the risk free real rate of interest cannot become negative. Public debt causes the equilibrium risk free rate of interest to rise: the public debt period ( ) plus the average period of production ( D T ) equal the average waiting period ( Z ). Thus substantial public debt is required for the goal of price stability. We thus come to a different view of public debt: it is inconsistent with the goal of a zero public debt. This different view of public debt (even apart from "Keynesian" considerations) has been introduced by Samuelson already in the year 1958. My "Austrian" capital theoretic approach allows me to show that it is the relevant view for the 21 st century.

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Section: Ponzi and All Thatsupporting

confidence: 86%

Public Debt Requirements in a Regime of Price Stability

Weizsäcker

Christian²

2011

SSRN Journal

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“…Barbie, Hagedorn, and Kaul (2004) point out that the empirical implementation of the Abel et al (1989) Pareto-optimality criterion, which requires verifying that goods flow out of firms to investors in every possible future, is impossible: conventional statistical methods can make statements about what will happen "almost surely" (that is, with probability 1), but they cannot assert for sure what will happen. For instance, flipping only heads in an infinite series of tosses of a fair coin is very unlikely (it will almost surely not happen), but it is not impossible.…”

Section: Is Dynamic Inefficiency a Real-world Problem?mentioning

confidence: 99%

Overlapping Generations: The First Jubilee

Weil

2008

Journal of Economic Perspectives

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Samuelson's (1958) overlapping generations model has turned 50. Seldom has so simple a model been so influential. Its "wow" factor, and the feeling of surprise at its originality and coolness have not paled with the years. The paper, in spite of its ripe age, still elicits wonder.Starting from the uncontroversial observation that "we live in a world where new generations are always coming along" (all unattributed quotations refer to Samuelson, 1958), Samuelson built a model that violates the credo of the first fundamental welfare theorem with which we still inculcate undergraduates 50 years later. According to Samuelson, all is not necessarily well in the best of market economies: with overlapping generations, even absent the usual suspects such as distortions and market failures, a competitive equilibrium need not be Pareto efficient. Worst of all, this failure of the first welfare theorem in an overlapping generations model occurs in a framework that is, in many ways, more plausible and realistic than the world of agents living synchronous and finite existences in which the theorem is usually proved.Like Mona Lisa's enigmatic smile, the mysterious welfare properties of the overlapping generations model are, to a significant extent, responsible for its popularity-along with the many economic issues it has illuminated in the last half-century. I take it as my brief in this celebratory paper to provide, after a short exposition of the main results of the overlapping generations model under certainty, an explanation of why the welfare properties of the overlapping generations y

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“…For the generation which is old at the beginning of the planning period, U 0,1 are the preferences at the start of period 1, see equation (1), and…”

Section: The Environmentmentioning

confidence: 99%

“…(2)) and U 0,1 , see (1), such that no other feasible allocation exists that attains equally large utilities for all histories and generations and a strictly larger utility for at least one history and generation.…”

Section: Definition 2 [Po 1]mentioning

confidence: 99%

Pension Systems and the Allocation of Macroeconomic Risk

Bovenberg

Uhlig

2006

SSRN Journal

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This paper explores the optimal risk sharing arrangement between generations in an overlapping generations model with endogenous growth. We allow for nonseparable preferences, paying particular attention to the risk aversion of the old as well as overall "life-cycle" risk aversion. We provide a fairly tractable model, which can serve as a starting point to explore these issues in models with a larger number of periods of life, and show how it can be solved. We provide a general risk sharing condition, and discuss its implications. We explore the properties of the model quantitatively. Among the key findings are * Address: Prof. Lans Bovenberg, FEW, Tilburg University, P.O. Box 90153, 5000 LE Tilburg, THE NETHERLANDS. e-mail: a.l.bovenberg@uvt.nl, fax: +31-13-4663066, home page http://center.uvt.nl/staff/bovenberg/. Prof. Harald Uhlig, Humboldt University, Wirtschaftswissenschaftliche Fakultät, Spandauer Str. 1, 10178 Berlin, GERMANY. e-mail: uhlig@wiwi.hu-berlin.de, fax: +49-30-2093 5934, home page http://www.wiwi.huberlin.de/wpol/. This research was supported by the Deutsche Forschungsgemeinschaft through the SFB 649 "Economic Risk". We are grateful to Christian Stoltenberg for his research assistance. 1 the following. First and for reasonable parameters, the old typically bear a larger burden of the risk in productivity surprises, if old-age risk-aversion is smaller than life risk aversion, and vice versa. Thus, it is not necessarily the case that the young ensure smooth consumption of the old. Second, consumption of the young and the old always move in the same direction, even for population growth shocks. This result is in contrast to the result of a fully-funded decentralized system without risk-sharing between generations. Third, persistent increases in longevity will lead to lower total consumption of the old (and thus certainly lower per-period consumption of the old) as well as the young as well as higher work effort of the young. The additional resources are instead used to increase growth and future output, resulting in higher consumption of future generations.

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Assessing Aggregate Tests of Efficiency for Dynamic Economies

Cited by 25 publications

References 0 publications

Public Debt Requirements in a Regime of Price Stability

Public Debt Requirements in a Regime of Price Stability

Overlapping Generations: The First Jubilee

Pension Systems and the Allocation of Macroeconomic Risk

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