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Demand expectations and the timing of stimulus policies

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  • Guimarães, Bernardo de Vasconcellos
  • Machado, Caio Henrique

Abstract

This paper proposes a simple macroeconomic model with staggered investment decisions. The model captures the dynamic coordination problem arising from demand externalities and fixed costs of investment. In times of low economic activity, a firm faces low demand and hence has less incentives for investing, which reinforces firms’ expectations of low demand. In the unique equilibrium of the model, demand expectations are pinned down by fundamentals and history. Owing to the beliefs that arise in equilibrium, there is no special reason for stimulus at times of low economic activity.

Suggested Citation

  • Guimarães, Bernardo de Vasconcellos & Machado, Caio Henrique, 2015. "Demand expectations and the timing of stimulus policies," Textos para discussão 379, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
  • Handle: RePEc:fgv:eesptd:379
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    References listed on IDEAS

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    Cited by:

    1. Bernardo Guimaraes & Caio Machado & Marcel Ribeiro, 2016. "A Model of the Confidence Channel of Fiscal Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(7), pages 1363-1395, October.
    2. Mathieu Taschereau-Dumouchel & Edouard Schaal, 2015. "Coordinating Business Cycles," 2015 Meeting Papers 178, Society for Economic Dynamics.
    3. Guimaraes, Bernardo & Pereira, Ana Elisa, 2017. "Dynamic coordination among heterogeneous agents," Journal of Mathematical Economics, Elsevier, vol. 73(C), pages 13-33.

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    More about this item

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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