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

Orlando Gomes ()
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Orlando Gomes: (Univ. Évora - ISCAL) Research Center

Computational Economics, 2025, vol. 66, issue 5, No 27, 4379 pages

Abstract: 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.

Keywords: Macroeconomics; Keynesian model; Investor sentiment; Endogenous business cycles; Nonlinear dynamics; Bifurcations and chaos (search for similar items in EconPapers)
JEL-codes: C61 E12 E32 E70 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10614-025-10856-w

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