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Can Heterogeneous Preferences Stabilize Endogenous Fluctuations?

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  • Stefano Bosi

    ()
    (EPEE - Centre d'Etudes des Politiques Economiques - Université d'Evry-Val d'Essonne, 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)

  • Thomas Seegmuller

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

Abstract

While most of the literature concerned with indeterminacy and endogenous cycles is based on the restrictive assumption of a representative consumer,some recent contributions have investigated the role of heterogeneous agents in dynamics. This paper adds to this latter strand of the literature by 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 propensity to save decreases macroeconomic volatility, by narrowing down the range of parameter values compatible with indeterminacy and ruling out expectations-driven fluctuations under a sufficiently large heterogeneity.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00266713.

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Date of creation: 2008
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Publication status: Published, Journal of Economic Dynamics and Control, 2008, 32, 2, 624-647
Handle: RePEc:hal:cesptp:halshs-00266713

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

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References

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  1. Woodford, Michael, 1986. "Stationary sunspot equilibria in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 40(1), pages 128-137, October.
  2. Christian Ghiglino & Marielle Olszak-Duquenne, 2004. "On the Impact of Heterogeneity on Indeterminacy," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 2004.09, Institut d'Economie et Econométrie, Université de Genève.
  3. Ghiglino, Christian & Venditti, Alain, 2007. "Wealth inequality, preference heterogeneity and macroeconomic volatility in two-sector economies," Journal of Economic Theory, Elsevier, vol. 135(1), pages 414-441, July.
  4. Stefano Bosi & Thomas Seegmuller, 2006. "Optimal Cycles and Social Inequality: What Do We Learn from the Gini Index?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194182, HAL.
  5. Grandmont, Jean-Michel & Pintus, Patrick & de Vilder, Robin, 1998. "Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles," Journal of Economic Theory, Elsevier, vol. 80(1), pages 14-59, May.
  6. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
  7. Ghiglino, Christian & Tvede, Mich, 1995. "Endowments, stability, and fluctuations in OG models," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 19(3), pages 621-653, April.
  8. d ASPREMONT, Claude, & DOS SANTOS FERREIRA , Rodolphe & GERARD-VARET , Louis-André, 1994. "Market Power, Coordination Failures and Endogenous Fluctuations," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1994068, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Cazzavillan, Guido & Lloyd-Braga, Teresa & Pintus, Patrick, 1996. "Multiple steady states and endogenous fluctuations with increasing returns to scale in production," CEPREMAP Working Papers (Couverture Orange) 9618, CEPREMAP.
  10. 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.
  11. Becker, R.C. & Foias, C., 1992. "The Local Bifurcation of Ramsey Equilibrium," Papers, Indiana - Center for Econometric Model Research 92-002, Indiana - Center for Econometric Model Research.
  12. Christian Ghiglino, 2003. "Wealth inequality and dynamic stability," Diskussionsschriften, Universitaet Bern, Departement Volkswirtschaft dp0310, Universitaet Bern, Departement Volkswirtschaft.
  13. Cazzavillan, Guido & Pintus, Patrick A., 2006. "Capital externalities in OLG economies," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 30(7), pages 1215-1231, July.
  14. Dixon,Huw David & Rankin,Neil, 1995. "The New Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521479479, 9.
  15. Becker, Robert A. & Foias, Ciprian, 1987. "A characterization of Ramsey equilibrium," Journal of Economic Theory, Elsevier, vol. 41(1), pages 173-184, February.
  16. Christian Ghiglino & Marielle Olszak-Duquenne, 2001. "Inequalities and fluctuations in a dynamic general equilibrium model," Economic Theory, Springer, Springer, vol. 17(1), pages 1-24.
  17. Lloyd-Braga, Teresa & Nourry, Carine & Venditti, Alain, 2005. "Indeterminacy in Dynamic Models: When Diamond Meets Ramsey," CEPR Discussion Papers 5255, C.E.P.R. Discussion Papers.
  18. Guido Cazzavillan & Patrick A. Pintus, 2004. "Robustness of Multiple Equilibria in OLG Economies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(2), pages 456-475, April.
  19. 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.
  20. 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.
  21. Ghiglino, Christian & Sorger, Gerhard, 2002. "Poverty Traps, Indeterminacy, and the Wealth Distribution," Journal of Economic Theory, Elsevier, vol. 105(1), pages 120-139, July.
  22. Sorger, Gerhard, 1994. "On the Structure of Ramsey Equilibrium: Cycles, Indeterminacy, and Sunspots," Economic Theory, Springer, Springer, vol. 4(5), pages 745-64, August.
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Citations

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Cited by:
  1. Mohanad Ismael, 2010. "Progressive income taxes and macroeconomic instability," Documents de recherche, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne 10-13, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  2. Yunfang Hu & Kazuo Mino, 2009. "Financial Integration and Aggregate Stability," Discussion Papers in Economics and Business 09-01, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  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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