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Coordination failure cycle

Author

Listed:
  • Rungcharoenkitkul, Phurichai

Abstract

This 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.

Suggested Citation

  • Rungcharoenkitkul, Phurichai, 2005. "Coordination failure cycle," MPRA Paper 37970, University Library of Munich, Germany, revised Mar 2012.
  • Handle: RePEc:pra:mprapa:37970
    as

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    File URL: https://mpra.ub.uni-muenchen.de/37970/1/MPRA_paper_37970.pdf
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    References listed on IDEAS

    as
    1. Boldrin, Michele & Woodford, Michael, 1990. "Equilibrium models displaying endogenous fluctuations and chaos : A survey," Journal of Monetary Economics, Elsevier, vol. 25(2), pages 189-222, March.
    2. Christophe Chamley, 1999. "Coordinating Regime Switches," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 869-905.
    3. Chamley, Christophe & Gale, Douglas, 1994. "Information Revelation and Strategic Delay in a Model of Investment," Econometrica, Econometric Society, vol. 62(5), pages 1065-1085, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    endogenous cycle; coordination game; learning; global games; hysteresis;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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