Faculty of Economics and Business Administration Publications Database

Indeterminacy of intertemporal equilibria under imperfect competition

Volume: 17
Pages: 307 - 323
ISSN-Print: 0938-2259 | Economic Theory
Link External Source: Online Version
Year: 2001

It is known that overlapping generations models with imperfectly competitive firms may exhibit a continuum of stationary equilibria. The reason of this indeterminacy is that different price expectation functions of consumers lead to different objective demand functions against which firms maximize. All these expectation functions fulfill perfect foresight in the equilibrium, but they can be arbitrary off the equilibrium. In this paper it is shown that it is not this arbitrariness which is responsible for the indeterminacy, but that the continuum of stationary equilibria emerges even if expectation functions are rational.