Econ 204A, Introduction to Part 4:

Overlapping Generations Models

Henning Bohn

Apart from the representative agent framework, the most widely used model in macroeconomics is the so-called overlapping generations model (OG). It recognizes that individuals have finite lives and that individuals in different cohorts face different decision problems. The most simple version assumes that individuals live for only two periods—best interpreted as long periods lasting, say, 20-30 years. In any period, there is an old generation and a young generation, plus perhaps a government. Their interaction yields interesting macroeconomic dynamics and many significant policy results. We will take about 3-4 classes for the OG model.

Romer ch.2B has the basic material, but does not cover all the relevant items. I will also use material from Diamond’s (1965) paper and from Blanchard/Fischer ch.3&5. Definitely read Romer; Diamond is also highly recommended, a classic paper. Consult Blanchard/Fischer if you have trouble following the class. The other readings are classics that are worth reading for the conceptual insights; I will mention them but not hold you responsible for the technical details.