Dynamic equilibrium

Updated: Aug 20, 2021

An equilibrium in an intertemporal setting, that is, when the economy has more than one time period. The characterization of the dynamic equilibrium depends on the set-up of a particular model. For example, in a by a utility function and a time discount factor, a short-term (single-period) production technology, and a bounded sequence of initial endowments for each period, the Walrasian equilibrium is described by a bounded production path and a bounded price sequence such that the consumption path is feasible in every period and maxiinizes the discounted stream of utility subject to the single aggregate (over time) budget constraint, and the production path maximizes shoit-nm profit. In this case the single budget constraint implies the assumption of complete markets, i.e. at time zero there is a forward market for every commodity for every day, or an asset (such as money) is available to transfer purchasing power over time. See also balanced growth path.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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