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Strategic Complementarity Slows Macroeconomic Adjustment to Temporary Shocks

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  • Oh, Seonghwan
  • Waldman, Michael

Abstract

A number of studies have employed strategic complementarity to show that many features of the Keynesian framework can be captured in models consistent with the microfoundations approach. The authors argue that strategic complementarity is an important factor in understanding why an economy may exhibit a slow return to steady-state behavior after a temporary shock. That is, given any of a variety of factors that would cause temporary shocks to have long-term effects, the speed with which the economy returns to steady-state behavior after a temporary shock is negatively related to the degree of strategic complementarity in the environment. Copyright 1994 by Oxford University Press.

Suggested Citation

  • Oh, Seonghwan & Waldman, Michael, 1994. "Strategic Complementarity Slows Macroeconomic Adjustment to Temporary Shocks," Economic Inquiry, Western Economic Association International, vol. 32(2), pages 318-329, April.
    • Handle: RePEc:oup:ecinqu:v:32:y:1994:i:2:p:318-29
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    Cited by:

    1. Bomfim, Antulio N & Diebold, Francis X, 1997. "Bonded Rationality and Strategic Complementarity in a Macroeconomic Model: Policy Effects, Persistence and Multipliers," Economic Journal, Royal Economic Society, vol. 107(444), pages 1358-1374, September.
    2. Bomfim, Antulio N., 2001. "Heterogeneous forecasts and aggregate dynamics," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 145-161, February.
    3. Ernst Fehr & Jean-Robert Tyran, 1999. "Does Money Illusion Matter? An Experimental Approach," CESifo Working Paper Series 184, CESifo.
    4. Ernst Fehr & Jean-Robert Tyran, 2001. "Does Money Illusion Matter?," American Economic Review, American Economic Association, vol. 91(5), pages 1239-1262, December.
    5. Anderlini, Luca & Canning, David, 2000. "Structural stability and robustness to bounded rationality," Discussion Paper Series In Economics And Econometrics 0002, Economics Division, School of Social Sciences, University of Southampton.
    6. Antulio N. Bomfim, "undated". "\"Forecasting the Forecasts of Others:\" Expectational Heterogeneity and Aggregate Dynamics," Finance and Economics Discussion Series 1996-41, Board of Governors of the Federal Reserve System (U.S.), revised 10 Dec 2019.

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