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Uncertainty, Policy Ineffectiveness, and Long Stagnation of the Macroeconomy

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  • Masanao Aoki

Abstract

The standard analysis in macroeconomics depends on the assumption of the representative agent. However, when the degree of uncertainty becomes significant, we cannot ignore a simple fact that the macroeconomy consists of a large number of heterogeneous agents. In this paper, we demonstrate the importance of the combinatory aspect. Specifically, the effectiveness of policy necessarily weakens as the degree of uncertainty rises. One might call this probrem "uncertainty trap". This may contribute to long stagnation of the macroeconomy.

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File URL: http://www.econ.ucla.edu/people/papers/Aoki/Aoki274.pdf
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Bibliographic Info

Paper provided by UCLA Department of Economics in its series UCLA Economics Online Papers with number 274.

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Date of creation: 20 Oct 2003
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Handle: RePEc:cla:uclaol:274

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Web page: http://www.econ.ucla.edu/

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  1. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
  2. Hiroshi Yoshikawa, 2003. "The Role of Demand in Macroeconomics," The Japanese Economic Review, Japanese Economic Association, vol. 54(1), pages 1-27.
  3. James Tobin, 1975. "Keynesian Models of Recession and Depression," Cowles Foundation Discussion Papers 387, Cowles Foundation for Research in Economics, Yale University.
  4. Martin Neil Baily, 1978. "Stabilization Policy and Private Economic Behavior," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(1), pages 11-60.
  5. McFadden, Daniel, 1974. "The measurement of urban travel demand," Journal of Public Economics, Elsevier, vol. 3(4), pages 303-328, November.
  6. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
  7. Aoki, Masanao, 1998. "Simple Model Of Asymmetrical Business Cycles: Interactive Dynamics Of A Large Number Of Agents With Discrete Choices," Macroeconomic Dynamics, Cambridge University Press, vol. 2(04), pages 427-442, December.
  8. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
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Cited by:
  1. Masanao Aoki, 2004. "New Frameworks for Macroeconomic Modelings: Some Illustrative Examples," UCLA Economics Online Papers 306, UCLA Department of Economics.

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