Dynamic Investigations of an Endogenous Business Cycle Model with Heterogeneous Agents

Abstract

AbstractWe introduce agents’ heterogeneity into a model of endogenous business cycles, in which agents can invest either in ‘good’ projects that contribute to future capital formation, or in ‘bad’ projects without that property. The resulting map involves three distinct regimes, two of which we linearize. Using theoretical results on piecewise linear systems and on border collision bifurcations, we are able to provide a thourough analysis of the dynamics.