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Coordinating Coordination Failures in Keynesian Models

Coordinating Coordination Failures in Keynesian Models Abstract This paper focuses on the importance of strategic complementarities in agents' payoff functions as a basis for macroeconomic coordination failures. Strategic complementarities arise when the optimal strategy of an agent depends positively upon the strategies of the other agents. We first analyze an abstract game and find that multiple equilibria and a multiplier process may arise when strategic complementarities are present. Often these equilibria can be Pareto ranked. We then place additional economic content on the analysis of this game by considering strategic complementarities arising from production functions, matching technologies, and commodity demand functions in a multisector, imperfectly competitive economy. * " Financial assistance from the Cowles Foundation at Yale University for both authors and from the National Science Foundation (Grant No. SES 8605302) to the first author is gratefully acknowledged. We received helpful comments and advice from seminar participants at Yale, New York University, the Board of Governors of the Federal Reserve System, the Conference on Unemployment at York University, Olivier Blanchard, Nobuhiro Kiyotaki, David Romer, and an anonymous referee. This content is only available as a PDF. © 1988 by the President and Fellows of Harvard College and The Massachusetts Institute of Technology http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Quarterly Journal of Economics Oxford University Press

Coordinating Coordination Failures in Keynesian Models

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References (24)

Publisher
Oxford University Press
Copyright
© 1988 by the President and Fellows of Harvard College and The Massachusetts Institute of Technology
ISSN
0033-5533
eISSN
1531-4650
DOI
10.2307/1885539
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper focuses on the importance of strategic complementarities in agents' payoff functions as a basis for macroeconomic coordination failures. Strategic complementarities arise when the optimal strategy of an agent depends positively upon the strategies of the other agents. We first analyze an abstract game and find that multiple equilibria and a multiplier process may arise when strategic complementarities are present. Often these equilibria can be Pareto ranked. We then place additional economic content on the analysis of this game by considering strategic complementarities arising from production functions, matching technologies, and commodity demand functions in a multisector, imperfectly competitive economy. * " Financial assistance from the Cowles Foundation at Yale University for both authors and from the National Science Foundation (Grant No. SES 8605302) to the first author is gratefully acknowledged. We received helpful comments and advice from seminar participants at Yale, New York University, the Board of Governors of the Federal Reserve System, the Conference on Unemployment at York University, Olivier Blanchard, Nobuhiro Kiyotaki, David Romer, and an anonymous referee. This content is only available as a PDF. © 1988 by the President and Fellows of Harvard College and The Massachusetts Institute of Technology

Journal

The Quarterly Journal of EconomicsOxford University Press

Published: Aug 1, 1988

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