Survey_Adam_2002

Abstract

I consider a simple overlapping generations model with production where each generation of agents lives for two periods - works when young and consumes when old- and may transfer wealth across time via fiat money. There is also an infinitely lived government that finances a constant real deficit through seignorage. This setup generates an environment closely related to the seignorage model of Sargent and Wallace (1987). In each time period a new generation of agents is born. In contrast to standard models agents of a given generation are either born as workers or entrepreneurs with a unit mass of each of them in every new generation.Workers are homogeneous and offer their labor force at a competitive labor market in return for a wage income. Entrepreneurs are in monopolistic competition with each entrepreneur i ? [0, 1] producing a good qi which is an imperfect substitute in the production of the aggregate consumption good c. The timing of events is as follows. At the beginning of each period, young entrepreneurs commit to a price at which they are willing to sell the product. Then old agents, i.e. old workers and old entrepreneurs, spend all their money holdings to order goods. At the same time, the government orders goods for government consumption. Firms accept any amount of orders at the price they posted and then hire the work force that is necessary to produce the ordered quantities. The labor market clears and production takes place. Young workers are paid their wage, young entrepreneurs retain their profits, and the produced goods are delivered for consumption to the old agents and the government. Then a new period starts.