Strategic complementarity in business formation: aggregate fluctuations and sunspot equilibria
AbstractThe possibility of sunspot equilibria and endogenous cycles are explored in a two-sector overlapping-generations model with entry. It is shown that if prospective entrants act oligopolistically as producers but competitively as consumers, then a strategic complementarity between the entry decision of agents across sectors and across time may arise. If the complementarity is sufficiently strong, the economy will have multiple, Pareto-ranked steady states. Stationary sunspot equilibria can then be constructed as a randomization between allocations in the neighborhood of the multiple steady states providing a source of aggregate fluctuations. Copyright 1993 by The Review of Economic Studies Limited.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 93-9.
Date of creation: 1993
Date of revision:
Other versions of this item:
- Chatterjee, Satyajit & Cooper, Russell & Ravikumar, B, 1993. "Strategic Complementarity in Business Formation: Aggregate Fluctuations and Sunspot Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 795-811, October.
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