Ambiguity, Heterogeneity, and the Business Cycle

This paper explores forward-looking ambiguity (Knightian uncertainty) in a model with homogeneous workers and credit-constrained heterogeneous entrepreneurs. Agents are ambiguity-averse, using a worst-case criterion to form expectations about future productivity. We characterize the ergodic steady state under ambiguity. Comparing our economy to one without uncertainty, we find that ambiguity: (i) lowers the productivity threshold for market entry, (ii) reduces the equilibrium interest rate, and (iii) shifts expenditures from entrepreneurs to workers. These results stem from persistent expectation-realization mismatches. While ambiguity does not affect stability, it alters the convergence rate to the steady state and helps explain key macroeconomic comovements.

Filippo Maurici is a Postdoctoral Researcher in Macroeconomics at the Department of Political Sciences, Università Roma Tre. He holds a PhD in Economics and Finance from Università di Roma Tor Vergata. His research focuses on macroeconomic dynamics, heterogeneity, expectations, and empirical banking, combining theoretical modeling with applied econometrics. His main thesis paper has been published in the Journal of Economic Dynamics and Control, and his works have been presented internationally.

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