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Heterogeneous Entrepreneurial Will and Aggregate Fluctuations: A Reassessment of the Standard Keynesian Macro Model

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  • Orlando Gomes

    ((Univ. Évora - ISCAL) Research Center)

Abstract

This paper devises an elementary Keynesian macro model in which: (i) Entrepreneurs are spread over a sentiment distribution; (ii) Individual positions in the distribution determine whether the selected level of investment is high, low, or zero; (iii) The entire sentiment distribution shifts in response to macro performance. The proposed framework materializes into a two-dimensional system of difference equations, from which one extracts relevant insights: (i) Two steady states are generated, one representing full employment and another one in which output remains below potential; (ii) The two steady states cannot be simultaneously stable; (iii) Both the neoclassical and the Keynesian equilibria may abandon the stability region if the investors’ sentiments change fast; (iv) Loss of stability culminates in regions of bounded instability characterized by aperiodic cycles and chaotic motion. The framework allows for approaching the impact of fiscal and monetary policies.

Suggested Citation

  • Orlando Gomes, 2025. "Heterogeneous Entrepreneurial Will and Aggregate Fluctuations: A Reassessment of the Standard Keynesian Macro Model," Computational Economics, Springer;Society for Computational Economics, vol. 66(5), pages 4351-4379, November.
    • Handle: RePEc:kap:compec:v:66:y:2025:i:5:d:10.1007_s10614-025-10856-w
    DOI: 10.1007/s10614-025-10856-w
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    JEL classification:

    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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