Equilibrium Selection under Cyclical Disequilibrium Dynamics.
The paper considers an abstract economy exhibiting strategic complentarity and multiple, isolated Nash equilibria. It introduces explicit disequilibrium adjustments, which are based on a combination of adaptive and extrapolative forecasts. In this way the locally stable equilibria are typically approached in a cyclical manner. Globally, the phenomenon of overshooting increases the likeliness of regime shifting in response to exogenous shocks. In particular, even undampened cyclical behaviour is possible after a one-time shock. A general conclusion is that the strong propagation effects make the economy much more susceptible to path-dependence than it would be under the equilibrium selection hypothesis conventionally employed in this framework. Copyright 2001 by Oxford University Press.
Year of publication: |
2001
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Authors: | Franke, Reiner |
Published in: |
Oxford Economic Papers. - Oxford University Press. - Vol. 53.2001, 1, p. 166-86
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Publisher: |
Oxford University Press |
Saved in:
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