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Limited Rationality and Strategic Complements: The Implications for Macroeconomics

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Author Info
Haltiwanger, John C
Waldman, Michael

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Abstract

This paper considers the implications of heterogeneity in information-processing abilities for macroeconomic models that exhibit "strategic complements." The latter is the same concept that has received much attention in the recent macro literature under the headings "Keynesian coordination problems" and "positive trading externalities." The authors consider environments in which agents vary in terms of their ability to form expectations, and ask whether it is the "sophisticated" agents or the "naive" agents who have a disproportionately large effect on macroeconomic equilibrium. They find that if macroeconomic interaction exhibits strategic complementarity, then it is the naive agents who have a disproportionate impact. Copyright 1989, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Publisher Info
Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 104 (1989)
Issue (Month): 3 (August)
Pages: 463-83
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Handle: RePEc:tpr:qjecon:v:104:y:1989:i:3:p:463-83

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  4. Potters, Jan & Suetens, Sigrid, 2006. "Cooperation in experimental games of strategic complements and substitutes," Discussion Paper 48, Tilburg University, Center for Economic Research. [Downloadable!]
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  5. Antulio N. Bomfim, 2000. "Heterogeneous forecasts and aggregate dynamics," Finance and Economics Discussion Series 2000-16, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  6. Gerberding, Christina, 2001. "The information content of survey data on expected price developments for monetary policy," Discussion Paper Series 1: Economic Studies 2001,09, Deutsche Bundesbank, Research Centre. [Downloadable!]
  7. Antulio N. Bomfim & Francis X. Diebold, 1996. "Bounded Rationality and Strategic Complementarity in a Macroeconomic Model: Policy Effects, Persistence and Multipliers," NBER Working Papers 5482, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Bill Branch & George W. Evans, 2003. "Intrinsic Heterogeneity in Expectation Formation," University of Oregon Economics Department Working Papers 2003-32, University of Oregon Economics Department, revised 04 Oct 2004. [Downloadable!]
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  9. Glauben, Thomas & Loy, Jens Peter & Meyer, Jochen, 2005. "The Impact of Euro Introduction on the Vertical Price Transmission in the German Food Market - Does Money Illusion Matter?," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24634, European Association of Agricultural Economists. [Downloadable!]
  10. Luis Carranza & José E. Galdón-Sánchez, 2002. "Financial Intermediation, Variability and the Development Process," Faculty Working Papers 04/02, School of Economics and Business Administration, University of Navarra. [Downloadable!]
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  11. Seonghwan Oh & Michael Waldman, 2005. "The Index of Leading Economic Indicators as a Source of Expectational Shocks," Eastern Economic Journal, Eastern Economic Association, vol. 31(1), pages 75-95, Winter. [Downloadable!]
  12. Ernst Fehr & Jean-Robert Tyran, 2005. "Individual Irrationality and Aggregate Outcomes," Discussion Papers 05-09, University of Copenhagen. Department of Economics. [Downloadable!]
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  13. Glauben, Thomas & Loy, Jens Peter & Meyer, Jochen, 2004. "Does Money Illusion Matter? The Impact Of Euro On The Vertical Transmission Of Food Price In Germany," 2004 Annual meeting, August 1-4, Denver, CO 20104, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  14. Jean-Robert Tyran & Rupert Sausgruber, 2002. "A Little Fairness may Induce a Lot of Redistribution in Democracy," University of St. Gallen Department of Economics working paper series 2002 2002-30, Department of Economics, University of St. Gallen. [Downloadable!]
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  16. Ernst Fehr & Jean-Robert Tyran, 2004. "Limited Rationality and Strategic Interaction - The Impact of the Strategic Environment on Nominal Inertia," Levine's Bibliography 122247000000000092, UCLA Department of Economics. [Downloadable!]
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