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Equilibrium Selection in Games with Macroeconomic Complementarities

Author

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  • Oddvar M. Kaarbøe

    (University of Bergen)

  • Alexander F. Tieman

    (Vrije Universiteit Amsterdam)

Abstract

We apply the stochastic evolutionary approach of equilibrium selection tomacroeconomic models in which a complementarity at the macro level ispresent. These models often exhibit multiple Pareto-ranked Nash equilibria,and the best response-correspondence of an individual increases with ameasure of the aggregate state of the economy. Our main theoretical resultshows how the equilibrium that is singled out by the evolutionary dynamicsis directly related to the underlying externality that creates themultiplicity problem in the underlying macroeconomic stage game. We alsoprovide clarifying examples from the macroeconomic literature.

Suggested Citation

  • Oddvar M. Kaarbøe & Alexander F. Tieman, 0000. "Equilibrium Selection in Games with Macroeconomic Complementarities," Tinbergen Institute Discussion Papers 99-096/1, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:19990096
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    References listed on IDEAS

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    2. Philippe Solal & Jacques Durieu, 2005. "Interaction on Hypergraphs," Post-Print hal-00375568, HAL.

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    More about this item

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • E19 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Other
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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