Coordination failure cycle
AbstractThis paper proposes a theory of endogenous fluctuations, grounded on a repeated game with strategic complementarity under incomplete information. The equilibrium is characterized by a persistent regime of high activity, where aggregate output tends to expand, followed by a persistent contractionary phase in a recurring cycle. The regime persistence is driven by belief hysteresis, where learning in active regime fuels optimism, propelling an expansion. After an inevitable regime switch, rational persistent pessimism ensues, leading to a prolonged contraction. The equilibrium cycle is unique, stochastic, and converges to a stationary distribution, which characterizes the nature of fluctuations in equilibrium.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 37970.
Date of creation: Dec 2005
Date of revision: Mar 2012
endogenous cycle; coordination game; learning; global games; hysteresis;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gale, D. & Chamley, C., 1992.
"Information Revelation and Strategic Delay in a Model of Investment,"
10, Boston University - Department of Economics.
- Chamley, Christophe & Gale, Douglas, 1994. "Information Revelation and Strategic Delay in a Model of Investment," Econometrica, Econometric Society, vol. 62(5), pages 1065-85, September.
- Christophe Chamley, 1999. "Coordinating Regime Switches," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 869-905, August.
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