The distribution of savings behaviours and macro dynamics

Abstract This article formulates a Keynesian macro model and explores its underlying dynamics. The distinctive features of the model relative to other Keynesian frameworks are: (1) the assumption that households are spread over a behavioural distribution that reflects their idiosyncratic attitudes towards savings; (2) the consideration of a macro–micro feedback mechanism according to which the state of the economy (measured by aggregate output or the unemployment rate) influences households’ savings behaviours. The devised analytical setup generates intuitive and appealing dynamic results, namely the formation of two alternative stable steady states, which are representative of two possible macroeconomic outcomes (with and without full employment). The stability of the steady state might be broken when the reaction of savings behaviours to perturbations in the unemployment rate is strong. The framework is flexible enough to allow for a compelling analysis of the implications of fiscal and monetary policies.