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Can heterogeneous preferences stabilize endogenous fluctuations

  • Bosi, Stefano
  • Seegmuller, Thomas

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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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 2 (February)
Pages: 624-647

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Handle: RePEc:eee:dyncon:v:32:y:2008:i:2:p:624-647
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. 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.
  2. repec:cup:cbooks:9780521479479 is not listed on IDEAS
  3. Ghiglino, Christian & Sorger, Gerhard, 2002. "Poverty Traps, Indeterminacy, and the Wealth Distribution," Journal of Economic Theory, Elsevier, vol. 105(1), pages 120-139, July.
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  5. Christian Ghiglino, 2003. "Wealth inequality and dynamic stability," Diskussionsschriften dp0310, Universitaet Bern, Departement Volkswirtschaft.
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  7. Thomas Seegmuller, 2009. "Capital-labor Substitution and Endogenous Fluctuations: a Monopolistic Competition Approach with Variable Mark-up," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194292, HAL.
  8. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
  9. Sorger, Gerhard, 1994. "On the Structure of Ramsey Equilibrium: Cycles, Indeterminacy, and Sunspots," Economic Theory, Springer, vol. 4(5), pages 745-64, August.
  10. d ASPREMONT, Claude, & DOS SANTOS FERREIRA , Rodolphe & GERARD-VARET , Louis-André, 1994. "Market Power, Coordination Failures and Endogenous Fluctuations," CORE Discussion Papers 1994068, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Stefano Bosi & Thomas Seegmuller, 2005. "Animal Spirits in Woodford and Reichlin Economies: The Representative Agent Does Matter," Documents de recherche 05-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  12. 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.
  13. Becker, R.C. & Foias, C., 1992. "The Local Bifurcation of Ramsey Equilibrium," Papers 92-002, Indiana - Center for Econometric Model Research.
  14. Christian Ghiglino & Mich Tvede, 1993. "Endowments, Stability and Fluctuations in OG Models," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 93.04, Institut d'Economie et Econométrie, Université de Genève.
  15. Christian Ghiglino & Marielle Olszak-Duquenne, 2001. "Inequalities and fluctuations in a dynamic general equilibrium model," Economic Theory, Springer, vol. 17(1), pages 1-24.
  16. 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.
  17. Lloyd-Braga, Teresa & Nourry, Carine & Venditti, Alain, 2007. "Indeterminacy in dynamic models: When Diamond meets Ramsey," Journal of Economic Theory, Elsevier, vol. 134(1), pages 513-536, May.
  18. 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.
  19. Woodford, Michael, 1986. "Stationary sunspot equilibria in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 40(1), pages 128-137, October.
  20. Duffy, John & Papageorgiou, Chris, 2000. " A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, vol. 5(1), pages 87-120, March.
  21. Becker, Robert A. & Foias, Ciprian, 1987. "A characterization of Ramsey equilibrium," Journal of Economic Theory, Elsevier, vol. 41(1), pages 173-184, February.
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