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Local Interactions and Global Persistence

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Author Info
Nienke A. Oomes (University of Wisconsin-Madison)
Abstract

This paper studies the effects of local interactions on the distribution of employment in a Keynesian-type model with strategic complementarities. It is shown that rational expectations generate symmetric equilibria for any interaction structure except autarky. Under adaptive expectations, the distribution of employment converges to a rational expectations equilibrium, implying that asymmetric equilibria, or inequality, cannot persist in the long run. On the basis of both analytical and computational results, however, it is shown that symmetric equilibria are unstable in the sense that, in the presence of noise, local interactions can produce globally persistent inequality.

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File URL: http://129.3.20.41/eps/mac/papers/0004/0004020.pdf
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Publisher Info
Paper provided by EconWPA in its series Macroeconomics with number 0004020.

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Length: 35 pages
Date of creation: 24 Jul 2000
Date of revision:
Handle: RePEc:wpa:wuwpma:0004020

Note: Type of Document - PDF; prepared on PC; to print on HP; pages: 35 ; figures: included
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Web page: http://129.3.20.41

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Related research
Keywords: game-theory evolution persistence inequality local interactions unemployment Keynes externalities

Find related papers by JEL classification:
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques
C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
R1 - Urban, Rural, and Regional Economics - - General Regional Economics

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