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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.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 32 (1994)
Issue (Month): 2 (April)
Pages: 318-29

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Handle: RePEc:oup:ecinqu:v:32:y:1994:i:2:p:318-29

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Cited by:
  1. Antulio N. Bomfim & Francis X. Diebold, 1997. "Bounded rationality and strategic complementarity in a macroeconomic model: policy effects, persistence, and multipliers," Working Papers 97-18, Federal Reserve Bank of Philadelphia.
  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, 2001. "Does Money Illusion Matter?," American Economic Review, American Economic Association, vol. 91(5), pages 1239-1262, December.
  4. Antulio N. Bomfim, 1996. ""Forecasting the forecasts of others." Expectational heterogeneity and aggregate dynamics," Finance and Economics Discussion Series 96-41, Board of Governors of the Federal Reserve System (U.S.).
  5. Ernst Fehr & Jean-Robert Tyran, 1999. "Does Money Illusion Matter? An Experimental Approach," CESifo Working Paper Series 184, CESifo Group Munich.
  6. 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.

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