Animal Spirits in Woodford and Reichlin Economies: The Representative Agent Does Matter

Macroeconomic dynamic models are often criticized because the households’ behavior is summarized by a representative agent and, then, they do not take into account consumers’ heterogeneity. Reconsidering the Woodford (1986) infinite-horizon model and the Reichlin (1986) OLG model, we show that the representative agent can be a good representation of heterogeneity in preferences, in order to study the local dynamics and the occurrence of endogenous fluctuations.