EXISTENCE OF A PARETO-OPTIMAL EQUILIBRIUM IN NEARLY-STATIONARY OVERLAPPING-GENERATIONS ECONOMIES

In overlapping-generations models of fiat money, the existence of a Pareto-optimal equilibrium - which defines an optimal quantity of money - is more general than well-known counter-examples suggest. Those examples, having no optimal equilibrium just because there are small variations in households' tastes and endowments across generations, are not typical. On the contrary: For an open-dense, full-measure subset of smooth stationary economies and an open-dense subset of continuous stationary economies, introducing small variations in tastes and endowments across generations preserves the existence of an optimal equilibrium. Put simply, optimal equilibria generically exist for nearly-stationary economies.