Dynamics and stability in an OLG model with non-separable preferences

Abstract

This paper presents sufficient conditions for existence and uniqueness of a steady state equilibrium in an OLG model with non-separable preferences and analyses the implications of such assumption for the local stability of the steady state equilibrium. The conditions for a stable solution are derived under the assumption that habits are transmitted both across and within generations. Under this assumption, the paper shows that monotonic convergence to the steady state is not always assured. The paper thus proves that also the optimal solution may be affected by instability and explosive dynamics, under particular conditions on the relevant parameters.