<p>Complexity issues are always a factor in choosing model frameworks.</p>

<p>In addition, my feeling is that historically the impressive possibility brought to light by the OG models was that an economy <em>could</em> be "<strong>dynamically inefficient</strong>" (=being characterized by over-accumulation of capital). After some empirical studies provided evidence that the main western economies did not appear to over-accumulate capital, there was perhaps an impression that the model, while structurally more realistic, had not "that much to offer" to compensate for its added complexity...</p>

<p>Not so, according to Philipe Weil, who celebrated the model's first 50 years of existence in the paper
<a href="https://www.aeaweb.org/articles.php?doi=10.1257/jep.22.4.115" rel="nofollow">Weil, Philippe. 2008. "Overlapping Generations: The First Jubilee." Journal of Economic Perspectives, 22(4): 115-34.</a>  (freely downloadable).</p>

<p>The paper is an enjoyable non-technical read, full of compacted information, knowledge and insights.  A quote (bold my emphasis):</p>

<blockquote>
  <p><em>"Samuelson’s stroke of genius was to construct a model that makes economies in which the first welfare theorem always holds, absent
  externalities and distortions, look like quite a special case. It is
  hard to escape the conclusion that the features of the overlapping
  generations model are the norm, rather than the exception: after all,
  can we seriously argue, <strong>once we understand what “new” means</strong>, against
  the realism of a model that rests entirely on the assumption that “we
  live in a world where new generations are always coming along?” In
  that respect, it is not the overlapping generations model, with the
  wealth of interesting issues it raises and its rich welfare
  properties, that is a simple toy model, but rather the competing
  workhorse of modern macroeconomics, the Ramsey–Cass–Koopmans model
  that assumes that no “new” generation ever comes along as future
  agents are all part of pre-existing families. Barro’s (1974) famous
  paper on debt neutrality and Weil (1987) make it clear that such a
  model emerges only if parents love their children (or future
  immigrants) enough to leave all of them positive bequests. This
  condition is very restrictive, and therefore the Ramsey model, with
  its long-run interest rate that always exceeds the growth rate, is
  literally quite extraordinary compared to the overlapping generations
  model.</em>"</p>
</blockquote>

<p>This is the rallying cry -in his paper Weil details many aspects and issues raised by the model, and the insights that it can provide.</p>

CC BY-SA 3.0
2015-05-07T02:02:08.147Z
2015-05-07T09:23:40.183Z
2015-05-07T09:23:40.183Z
Alecos Papadopoulos
<p>One technical straightforward definition could be that dynamics in discrete time (except continuous time overlapping generations model) are often more difficult to deal with. </p>

CC BY-SA 3.0
2015-05-07T15:37:42.367Z
2015-05-07T15:37:42.367Z
optimal control
<p>It seems that overlapping generation model has far more realistic assumptions than ordinary Ramsey-Prescott RBC model for use in macroeconomics. Why is Ramsey-Prescott ones, even New Keynesian variants, are more popular than overlapping generation ones? Is this just due to simplicity, or is there any fundamental problem with the consequences of overlapping generation model?</p>

CC BY-SA 3.0
2017-04-22T21:36:21.413Z
One of the major drivers of macro research is to support inflation-targeting central banks. How do you use an OLG model to predict inflation over the next two years?
Brian Romanchuk
CC BY-SA 3.0
2015-01-26T00:29:22.000Z
According to these lecture notes, it is "widely used" today
http://people.stfx.ca/tleo/AdvMacroLec5.pdf
charlotte
CC BY-SA 3.0
2015-01-26T04:13:46.867Z
Yeah, I think they are used a lot. However, I think they might be less common because they're computationally more difficult to work with.
jmbejara
CC BY-SA 3.0
2015-01-26T14:33:16.127Z
Two generation OLG models aren't particularly difficult to work with but I'm not sure they add much realism either. The complex models that have many, many, simultaneous generations are much thornier. There are lots of dimensions on which model heterogeneity can be added. OLG seems to take a firm stance that age is a very important dimension of heterogeneity. Perhaps for lots of them age isn't as interesting as impatience, level of modelers human capital, credit constraints, risk tolerance, and others are more important.
BKay
<macroeconomics>
Why is overlapping generation model not a main model in macroeconomics?
Mak
# Why is overlapping generation model not a main model in macroeconomics?

(Asked by: username_0 on 2015-01-25)

It seems that overlapping generation model has far more realistic assumptions than ordinary Ramsey-Prescott RBC model for use in macroeconomics. Why is Ramsey-Prescott ones, even New Keynesian variants, are more popular than overlapping generation ones? Is this just due to simplicity, or is there any fundamental problem with the consequences of overlapping generation model?

**Tags:** macroeconomics

> **Comments:**
> **username_2**: According to these lecture notes, it is "widely used" today http://people.stfx.ca/tleo/AdvMacroLec5.pdf  
> **username_3**: Yeah, I think they are used a lot. However, I think they might be less common because they're computationally more difficult to work with.  
> **username_4**: Two generation OLG models aren't particularly difficult to work with but I'm not sure they add much realism either. The complex models that have many, many, simultaneous generations are much thornier. There are lots of dimensions on which model heterogeneity can be added. OLG seems to take a firm stance that age is a very important dimension of heterogeneity. Perhaps for lots of them age isn't as interesting as impatience, level of modelers human capital, credit constraints, risk tolerance, and others are more important.  
> **username_1**: One of the major drivers of macro research is to support inflation-targeting central banks. How do you use an OLG model to predict inflation over the next two years?  

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## 2 answers

### Answer by username_5 on 2015-05-07. Score: 5

Complexity issues are always a factor in choosing model frameworks.

In addition, my feeling is that historically the impressive possibility brought to light by the OG models was that an economy *could* be "**dynamically inefficient**" (=being characterized by over-accumulation of capital). After some empirical studies provided evidence that the main western economies did not appear to over-accumulate capital, there was perhaps an impression that the model, while structurally more realistic, had not "that much to offer" to compensate for its added complexity...

Not so, according to Philipe Weil, who celebrated the model's first 50 years of existence in the paper
[Weil, Philippe. 2008. "Overlapping Generations: The First Jubilee." Journal of Economic Perspectives, 22(4): 115-34.](https://www.aeaweb.org/articles.php?doi=10.1257/jep.22.4.115) (freely downloadable).

The paper is an enjoyable non-technical read, full of compacted information, knowledge and insights. A quote (bold my emphasis):

> *"Samuelson’s stroke of genius was to construct a model that makes economies in which the first welfare theorem always holds, absent
> externalities and distortions, look like quite a special case. It is
> hard to escape the conclusion that the features of the overlapping
> generations model are the norm, rather than the exception: after all,
> can we seriously argue, **once we understand what “new” means**, against
> the realism of a model that rests entirely on the assumption that “we
> live in a world where new generations are always coming along?” In
> that respect, it is not the overlapping generations model, with the
> wealth of interesting issues it raises and its rich welfare
> properties, that is a simple toy model, but rather the competing
> workhorse of modern macroeconomics, the Ramsey–Cass–Koopmans model
> that assumes that no “new” generation ever comes along as future
> agents are all part of pre-existing families. Barro’s (1974) famous
> paper on debt neutrality and Weil (1987) make it clear that such a
> model emerges only if parents love their children (or future
> immigrants) enough to leave all of them positive bequests. This
> condition is very restrictive, and therefore the Ramsey model, with
> its long-run interest rate that always exceeds the growth rate, is
> literally quite extraordinary compared to the overlapping generations
> model.*"

This is the rallying cry -in his paper Weil details many aspects and issues raised by the model, and the insights that it can provide.


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### Answer by username_6 on 2015-05-07. Score: 0

One technical straightforward definition could be that dynamics in discrete time (except continuous time overlapping generations model) are often more difficult to deal with.


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