Financial Instability and Agents' Heterogeneity: A Post Minskyan Research Agenda

In this paper we present a macroeconomic model in which changes in the variance (and higher moments of the distribution) of firm's financial conditions - i.e. "distributive shocks" - are bound to play a crucial role in the determination of output fluctuations. Firms heterogeneity is defined by the degree of financial robustness, which affects (optimal) investment in a bankruptcy risk context à la Greenwald-Stiglitz. Households, for the sake of simplicity, are homogeneous in every respect so that we can adopt the representative agent hypothesis. We explore the properties of the macro-dynamic model either via the study of the two-dimensional map defining the laws of motion of the average equity ratio and of the variance of the distribution or via simulations in a multiagent framework. We find that the way in which we conceive of fluctuations of the major macroeconomic variables is deeply affected by the explicit consideration of heterogeneity.