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Booms and Slumps in A Game of Sequential Investment with the Changing Fundamentals

Booms and Slumps in A Game of Sequential Investment with the Changing Fundamentals Abstract Many less developed countries have experienced prolonged periods of expansions and reversals in foreign investment inflows. This paper presents a simple game-theoretic model that can explain hysteretic patterns of serial correlation in investment behavior. We develop a sequential move game of coordinated investment played by short-run players under the changing economic environment and demonstrate that in a unique equilibrium of the game, the economy fluctuates over multiple static equilibria, generating hysteresis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Japanese Economic Review Springer Journals

Booms and Slumps in A Game of Sequential Investment with the Changing Fundamentals

Oyama, Daisuke
The Japanese Economic Review , Volume 55 (3): 10 – Sep 1, 2004
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References (30)

Publisher
Springer Journals
Copyright
2004 Japanese Economic Association
ISSN
1352-4739
eISSN
1468-5876
DOI
10.1111/j.1468-5876.2004.00275.x
Publisher site
See Article on Publisher Site

Abstract

Abstract Many less developed countries have experienced prolonged periods of expansions and reversals in foreign investment inflows. This paper presents a simple game-theoretic model that can explain hysteretic patterns of serial correlation in investment behavior. We develop a sequential move game of coordinated investment played by short-run players under the changing economic environment and demonstrate that in a unique equilibrium of the game, the economy fluctuates over multiple static equilibria, generating hysteresis.

Journal

The Japanese Economic Review – Springer Journals

Published: Sep 1, 2004

Keywords: economics, general; microeconomics; macroeconomics/monetary economics//financial economics; econometrics; development economics; economic history

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