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Can heterogeneous preferences stabilize endogenous fluctuations ?

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Author Info
Stefano Bosi () (EQUIPPE et EPEE)
Thomas Seegmuller () (Centre d'Economie de la 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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File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2006/V06082.pdf
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Publisher Info
Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number v06082.

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Length: 28 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:mse:wpsorb:v06082

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

Find related papers by JEL classification:
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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  1. 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. [Downloadable!] (restricted)
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  6. Ghiglino, Christian, 2005. "Wealth inequality and dynamic stability," Journal of Economic Theory, Elsevier, vol. 124(1), pages 106-115, September. [Downloadable!] (restricted)
    Other versions:
  7. Bosi, Stefano & Seegmuller, Thomas, 2006. "Optimal cycles and social inequality: What do we learn from the Gini index?," Research in Economics, Elsevier, vol. 60(1), pages 35-46, March. [Downloadable!] (restricted)
  8. 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_v1, HAL. [Downloadable!]
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  11. Cazzavillan, Guido & Pintus, Patrick A., 2006. "Capital externalities in OLG economies," Journal of Economic Dynamics and Control, Elsevier, vol. 30(7), pages 1215-1231, July. [Downloadable!] (restricted)
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  15. Cazzavillan, Guido & Lloyd-Braga, Teresa & Pintus, Patrick A., 1998. "Multiple Steady States and Endogenous Fluctuations with Increasing Returns to Scale in Production," Journal of Economic Theory, Elsevier, vol. 80(1), pages 60-107, May. [Downloadable!] (restricted)
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  16. Ghiglino, Christian & Sorger, Gerhard, 2002. "Poverty Traps, Indeterminacy, and the Wealth Distribution," Journal of Economic Theory, Elsevier, vol. 105(1), pages 120-139, July. [Downloadable!] (restricted)
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    Other versions:
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