Steady States and Determinacy of Equilibria in Economies With Infinitely Lived Agents

Abstract

Joan Robinson frequently argued that neoclassical general equilibrium theory could not determine the rate of interest in intertemporal models (see, for example, Robinson, 1973). There were two aspects to this critique: First, neoclassical marginal productivity theory depended on the notion of an aggregate capital stock. Because of aggregation problems, notably reswitching, this concept could not be defined without resorting to circular reasoning except in the most unrealistic of models. Second, for any rate of interest there is a different short-period equilibrium in a neoclassical model. There are not enough equilibrium conditions to determine what this rate of interest is.

We are grateful to NSF grants SES 85–09484 and SES 83–20007, and to the ULCA Academic Senate for financial support.