<p>You can find OLG models that do not classify as DSGE (in particular, the model might not be stochastic) as well as DSGE with overlapping generations (contrary to those with infinitely lived agents). </p>

<p>You can find more detail on this on <a href="https://www.econstor.eu/bitstream/10419/155468/1/chope-wp-2017-05.pdf" rel="nofollow noreferrer">this</a> working paper by Assous and Duarte (2017), as they note </p>

<blockquote>
  <p>In the early 1980s, when the real business cycle macroeconomists
  brought one single model (a perfectly competitive growth model with
  infinite-lived agents, flexible prices, and perfect information) to
  bear on any macroeconomic issue, several macroeconomists were working
  with OLG models and addressing business fluctuations matters. Besides
  the efficiency issue, the model seemed to have much more to offer. New
  classical economists such as Wallace and Lucas saw in the OLG model
  the possibility to develop new microfounded models of fiat money
  without postulating that money balances enter the utility function of
  agents. At about the same time, other macroeconomists discovered that
  OLG models give room for either deterministic or stochastic
  oscillatory trajectories. Endogenous cycles and chaos as well as
  sunspot equilibria were then shown to occur in the presence of
  perfectly competitive product market devoid of any nominal price
  rigidities. Gradually over time, important contributors to that
  literature — most notably, for our interests here, is Woodford —
  strove to transfer OLG conclusions to infinite-lived agents models. In
  this context, new dynamic models with market imperfections were
  developed, initially with flexible prices, that eventually became the
  hallmark of the sticky price, DSGE macroeconomics (earlier referred to
  as the new neoclassical synthesis).</p>
</blockquote>

CC BY-SA 4.0
2020-05-18T18:43:24.647Z
Thanks for your answer. So, if OLG is not DSGE, it's because they leave out exogenous shocks for simplicity? I guess this is a rather minor deviation. They still mostly retain rational expectations, general equilibrium and dynamic optimization over time, I guess?
Beck Batucada
CC BY-SA 4.0
2020-05-19T10:59:17.907Z
You can study DSGE models within an OLG framework. But note that in OLG any dynamics are likely to be in capital stock adjustment and accumulation of wealth and public debt (and at the core these models mostly focus on long-run equilibrium); while DSGE models emphasise the dynamics of the economic cycle (with businesses and consumers basing their expectations on the forecasts of the model). DSGE models
analyse the effects of macro policies and shocks on the economic cycle, while OLG models (as a type of CGE model) will study the impact of permanent policies.
Ali
CC BY-SA 4.0
2020-05-19T11:06:29.363Z
But like I said, these differences do not preclude the possibility to treat DSGE models in an OLG framework (for example, a way to break the Ricardian equivalence underlying benchmark DSGE models is to move to an OLG framework). Generally speaking, DSGE and OLG models encompass a wide variety of models and whether a model classifies as DSGE or OLG (or both) will refer to whether it has the key characteristics of these models. However, like @Michael Greinecker pointed out, most people will not refer to OLG models when they refer to DSGE.
Ali
CC BY-SA 4.0
2020-05-18T16:18:43.047Z
2020-05-18T16:18:43.047Z
Ali
<p>Are overlapping generation models (OLG) extensions of a dynamic stochastic general equilibrium (DSGE) model? Or aren't these DSGE per se? </p>

CC BY-SA 4.0
2020-05-18T20:23:51.747Z
Most people do not refer to OLG-models when they refer to DSGEs, irrespective of whether OLG models can be general equilibrium models with dynamics and stochastics.
Michael Greinecker
CC BY-SA 4.0
2020-05-19T16:25:18.863Z
Ok thanks. But I'm not interested in semantics here, more in similarities in paradigm/methodology.
Beck Batucada
<macroeconomics><dsge><dynamic-optimization><stochastic-processes><olg>
Are overlapping generation (OLG) models extensions of a DSGE model?
Beck Batucada
# Are overlapping generation (OLG) models extensions of a DSGE model?

(Asked by: username_0 on 2020-05-18)

Are overlapping generation models (OLG) extensions of a dynamic stochastic general equilibrium (DSGE) model? Or aren't these DSGE per se?

**Tags:** macroeconomics, dsge, dynamic-optimization, stochastic-processes, olg
> **Comments:**
> **username_1**: Most people do not refer to OLG-models when they refer to DSGEs, irrespective of whether OLG models can be general equilibrium models with dynamics and stochastics.  
> **username_0**: Ok thanks. But I'm not interested in semantics here, more in similarities in paradigm/methodology.  

---

## 1 answers

### Answer by username_2 on 2020-05-18. Score: 2 | Accepted answer

You can find OLG models that do not classify as DSGE (in particular, the model might not be stochastic) as well as DSGE with overlapping generations (contrary to those with infinitely lived agents).

You can find more detail on this on [this](https://www.econstor.eu/bitstream/10419/155468/1/chope-wp-2017-05.pdf) working paper by Assous and Duarte (2017), as they note

> In the early 1980s, when the real business cycle macroeconomists
> brought one single model (a perfectly competitive growth model with
> infinite-lived agents, flexible prices, and perfect information) to
> bear on any macroeconomic issue, several macroeconomists were working
> with OLG models and addressing business fluctuations matters. Besides
> the efficiency issue, the model seemed to have much more to offer. New
> classical economists such as Wallace and Lucas saw in the OLG model
> the possibility to develop new microfounded models of fiat money
> without postulating that money balances enter the utility function of
> agents. At about the same time, other macroeconomists discovered that
> OLG models give room for either deterministic or stochastic
> oscillatory trajectories. Endogenous cycles and chaos as well as
> sunspot equilibria were then shown to occur in the presence of
> perfectly competitive product market devoid of any nominal price
> rigidities. Gradually over time, important contributors to that
> literature — most notably, for our interests here, is Woodford —
> strove to transfer OLG conclusions to infinite-lived agents models. In
> this context, new dynamic models with market imperfections were
> developed, initially with flexible prices, that eventually became the
> hallmark of the sticky price, DSGE macroeconomics (earlier referred to
> as the new neoclassical synthesis).

> **Comments:**
> **username_0**: Thanks for your answer. So, if OLG is not DSGE, it's because they leave out exogenous shocks for simplicity? I guess this is a rather minor deviation. They still mostly retain rational expectations, general equilibrium and dynamic optimization over time, I guess?  
> **username_2**: You can study DSGE models within an OLG framework. But note that in OLG any dynamics are likely to be in capital stock adjustment and accumulation of wealth and public debt (and at the core these models mostly focus on long-run equilibrium); while DSGE models emphasise the dynamics of the economic cycle (with businesses and consumers basing their expectations on the forecasts of the model). DSGE models analyse the effects of macro policies and shocks on the economic cycle, while OLG models (as a type of CGE model) will study the impact of permanent policies.  
> **username_2**: But like I said, these differences do not preclude the possibility to treat DSGE models in an OLG framework (for example, a way to break the Ricardian equivalence underlying benchmark DSGE models is to move to an OLG framework). Generally speaking, DSGE and OLG models encompass a wide variety of models and whether a model classifies as DSGE or OLG (or both) will refer to whether it has the key characteristics of these models. However, like @Michael Greinecker pointed out, most people will not refer to OLG models when they refer to DSGE.  

---

