On Otaki’s Keynesian Macroeconomic Model

Abstract

“Otaki model” is an overlapping generations (OLG) model with fiat money and imperfect competition. It derives Keynesian implications such as involuntary unemployment, welfare-improving fiscal and monetary policy, and money non-neutrality. Though its structure can be applied to other models with productive implications, the Otaki model has not been fully understood by economists. One reason could be that in seminal works about the Otaki model, he implicitly changed the hidden assumptions, and hence, the implications of the model. By employing such assumptions, he aimed at dealing with multiplicity of equilibria in the OLG model. This paper points out the hidden assumptions and reinterpret s the Otaki model from the viewpoint of multiple equilibria.