Business Cycle Phenomena in Overlapping Generations Economies with Stochastic Production

This paper analyzes economic fluctuations in an overlapping generations economy with productive capital in which random shocks in aggregate productivity are present. Under specific assumptions we obtain an explicit solution of the model. Applying random dynamical systems theory, we can prove that the long-run behavior of the economy is uniquely described by an asymptotically stable random fixed point. The statistical properties of the aggregates output, consumption, capital stock, and real wage are investigated numerically. We find that our artificial economy displays several real world business cycle phenomena