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Uncertainty, Policy Ineffectiveness, and Long Stagnation of the Macroeconomy

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  • Masanao Aoki

    (Department of Economics, University of California, Los Angeles)

  • Hiroshi Yoshikawa

    (Faculty of Economics, University of Tokyo)

Abstract

The standard analysis in macroeconomics depends on the assumption of the representative agent. However, when the degree of uncertainty becomes significant, we cannot ignore a simple fact that the macroeconomy consists of a large number of heterogeneous agents. In this paper, we demonstrate the importance of the combinatory aspect. Specifically, the effectiveness of policy necessarily weakens as the degree of uncertainty rises. One might call this probrem "uncertainty trap". This may contribute to long stagnation of the macroeconomy.

Suggested Citation

  • Masanao Aoki & Hiroshi Yoshikawa, 2003. "Uncertainty, Policy Ineffectiveness, and Long Stagnation of the Macroeconomy," CIRJE F-Series CIRJE-F-197, CIRJE, Faculty of Economics, University of Tokyo.
  • Handle: RePEc:tky:fseres:2003cf197
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    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2003/2003cf197.pdf
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    References listed on IDEAS

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    1. Tobin, James, 1975. "Keynesian Models of Recession and Depression," American Economic Review, American Economic Association, vol. 65(2), pages 195-202, May.
    2. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
    3. Hiroshi Yoshikawa, 2003. "The Role of Demand in Macroeconomics," The Japanese Economic Review, Japanese Economic Association, vol. 54(1), pages 1-27.
    4. L. Ingber, 1986. "Statistical mechanics of neocortical interactions," Lester Ingber Papers 86ni, Lester Ingber.
    5. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    6. Aoki,Masanao, 1998. "New Approaches to Macroeconomic Modeling," Cambridge Books, Cambridge University Press, number 9780521637695, March.
    7. Aoki, Masanao, 1998. "Simple Model Of Asymmetrical Business Cycles: Interactive Dynamics Of A Large Number Of Agents With Discrete Choices," Macroeconomic Dynamics, Cambridge University Press, vol. 2(04), pages 427-442, December.
    8. Martin Neil Baily, 1978. "Stabilization Policy and Private Economic Behavior," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(1), pages 11-60.
    9. McFadden, Daniel, 1974. "The measurement of urban travel demand," Journal of Public Economics, Elsevier, vol. 3(4), pages 303-328, November.
    10. L. Ingber, 1982. "Statistical mechanics of neocortical interactions. I. Basic formulation," Lester Ingber Papers 82ni, Lester Ingber.
    11. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
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    Cited by:

    1. Belke, Ansgar & Kotz, Hans-Helmut & Paul, Stephan & Schmidt, Christoph M. (ed.), 2009. "Wirtschaftspolitik im Zeichen europäischer Integration: Festschrift für Wim Kösters anlässlich seines 65. Geburtstages," RWI Schriften, RWI - Leibniz-Institut für Wirtschaftsforschung, volume 83, number 83.
    2. Boris Cournède & Diego Moccero, 2009. "Is there a Case for Price-level Targeting?," OECD Economics Department Working Papers 721, OECD Publishing.
    3. repec:spr:jeicoo:v:12:y:2017:i:3:d:10.1007_s11403-016-0175-y is not listed on IDEAS
    4. Masanao Aoki, 2004. "New Frameworks for Macroeconomic Modelings: Some Illustrative Examples," UCLA Economics Online Papers 306, UCLA Department of Economics.

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