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Can heterogeneous preferences stabilize endogenous fluctuations

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  • Bosi, Stefano
  • Seegmuller, Thomas

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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  • Bosi, Stefano & Seegmuller, Thomas, 2008. "Can heterogeneous preferences stabilize endogenous fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 624-647, February.
  • Handle: RePEc:eee:dyncon:v:32:y:2008:i:2:p:624-647
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    Cited by:

    1. 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.
    2. repec:mje:mjejnl:v:10:y:2014:i:2:p:49-61 is not listed on IDEAS
    3. Mohanad Ismael, 2010. "Progressive income taxes and macroeconomic instability," Documents de recherche 10-13, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    4. 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).

    More about this item

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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