What to explore
Change parameters and watch the model adjust.
- Productivity, capital share, depreciation, and household saving propensity
- Population growth and the initial capital stock for transition exercises
Advanced macroeconomics
Diamond Overlapping-Generations Model
A two-period overlapping-generations model that links wages, interest rates, and private saving to long-run capital accumulation across cohorts.
Focus
Saving across cohorts, golden rule, and dynamic inefficiency
Study the steady state, compare it with the golden-rule benchmark, and see when an economy may overaccumulate capital and become dynamically inefficient.Core ideas
Interpret the mechanics before you chase the graphs.
- In the Diamond model, each generation saves when young and dissaves when old.
- The competitive steady state need not coincide with the consumption-maximizing golden rule.
- Dynamic inefficiency appears when the economy has accumulated more capital than is socially useful.
Learning goals
What this model should help students internalize.
- Connect household saving decisions to equilibrium capital in an overlapping-generations economy.
- Compare the competitive steady state to the golden-rule benchmark.
- Recognize the logic of dynamic inefficiency when capital is overaccumulated.
Prerequisites
Concepts to review before diving in.
- Ramsey or Solow steady-state intuition
- Comfort with factor prices and life-cycle saving logic
Next models to study
Keep moving through the track.
Advanced macroeconomics
AK Endogenous Growth Model
Change technology, saving, and policy wedges to see how the growth rate of capital, output, and consumption can remain permanently elevated.
Advanced macroeconomics
Small Open Economy Model
Explore how productivity shifts, world interest rates, and impatience shape consumption, external borrowing, and the current account over time.