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Can heterogeneous preferences stabilize endogenous fluctuations ?

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  • Stefano Bosi

    ()
    (EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université Lille I - Sciences et technologies - Université Lille II - Droit et santé - Université Lille III - Sciences humaines et sociales - PRES Université Lille Nord de France, EPEE - Université d'Evry-Val d'Essonne)

  • Thomas Seegmuller

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

Abstract

While most of the literature concerned with indeterminacy and endogenous cycles is based on the questionable assumption of a representative consumer, some recent works have investigated the role of heterogeneous agents on dynamics. This paper adds a contribution to the debate, highlighting the effects of heterogeneity in consumers' preferences within an overlapping generations economy with capital accumulation, endogenous labor supply and consumption in both periods. Using a mean-preserving approach to heterogeneity, we show that increasing the dispersion of propensities to save turns out to stabilize the macroeconomic volatility, by reducing the range of parameters compatible with indeterminacy and ruling out expectations-driven fluctuations under a sufficiently large heterogeneity.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00130200.

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Date of creation: Dec 2006
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Handle: RePEc:hal:cesptp:halshs-00130200

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Keywords: Endogenous fluctuations; heterogeneous preferences; mean-preserving dispersion; overlapping generations.;

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  2. Christian Ghiglino & Marielle Olszak-Duquenne, 2005. "On The Impact Of Heterogeneity On Indeterminacy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 171-188, 02.
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  4. Stefano Bosi & Thomas Seegmuller, 2005. "Animal Spirits in Woodford and Reichlin Economies: The Representative Agent Does Matter," Documents de recherche, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne 05-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  5. Christian Ghiglino, 2003. "Wealth inequality and dynamic stability," Diskussionsschriften, Universitaet Bern, Departement Volkswirtschaft dp0310, Universitaet Bern, Departement Volkswirtschaft.
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  13. Grandmont, Jean-Michel & Pintus, Patrick & de Vilder, Robin, 1998. "Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles," Journal of Economic Theory, Elsevier, Elsevier, vol. 80(1), pages 14-59, May.
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  17. Ghiglino, Christian & Sorger, Gerhard, 2002. "Poverty Traps, Indeterminacy, and the Wealth Distribution," Journal of Economic Theory, Elsevier, Elsevier, vol. 105(1), pages 120-139, July.
  18. Duffy, John & Papageorgiou, Chris, 2000. " A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, Springer, vol. 5(1), pages 87-120, March.
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  21. Thomas Seegmuller, 2009. "Capital-Labour Substitution And Endogenous Fluctuations: A Monopolistic Competition Approach With Variable Markup," The Japanese Economic Review, Japanese Economic Association, Japanese Economic Association, vol. 60(3), pages 301-319.
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Citations

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Cited by:
  1. Yunfang Hu & Kazuo Mino, 2009. "Financial Integration and Aggregate Stability," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 09-01, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  2. Ismael, Mohanad, 2011. "Progressive income taxes and macroeconomic instability," MPRA Paper 49917, University Library of Munich, Germany.
  3. Antoci, Angelo & Naimzada, Ahmad & Sodini, Mauro, 2009. "Strategic interactions and heterogeneity in a overlapping generations model with negative environmental externalities," MPRA Paper 18221, University Library of Munich, Germany.

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