Can heterogeneous preferences stabilize endogenous fluctuations
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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