Rungcharoenkitkul, Phurichai (2005): Coordination failure cycle.
Download (1323Kb) | Preview
This paper proposes a theory of endogenous fluctuations, grounded on a repeated game with strategic complementarity under incomplete information. The equilibrium is characterized by a persistent regime of high activity, where aggregate output tends to expand, followed by a persistent contractionary phase in a recurring cycle. The regime persistence is driven by belief hysteresis, where learning in active regime fuels optimism, propelling an expansion. After an inevitable regime switch, rational persistent pessimism ensues, leading to a prolonged contraction. The equilibrium cycle is unique, stochastic, and converges to a stationary distribution, which characterizes the nature of fluctuations in equilibrium.
|Item Type:||MPRA Paper|
|Original Title:||Coordination failure cycle|
|Keywords:||endogenous cycle, coordination game, learning, global games, hysteresis|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
|Depositing User:||Phurichai Rungcharoenkitkul|
|Date Deposited:||10. Apr 2012 03:55|
|Last Modified:||17. Feb 2013 20:59|
Abreu, D. and M. K. Brunnermeier (2003): “Bubbles and Crashes,” Econometrica, 71, 173–204.
Angeletos, G.-M. and J. La’O (2012): “Sentiments,” Mimeo.
Angeletos, G.-M. and A. Pavan (2007): “Efficient Use of Information and Social Value of Information,” Econometrica, 75, 1103–1142.
Boldrin, M. and M. Woodford (1990): “Equilibrium Models Displaying Endogenous Fluctuations and Chaos: A Survey,” Journal of Monetary Economics, 25, 189–222.
Caplin, A. and J. Leahy (1994): “Business as Usual, Market Crashes and Wisdom After the Fact,” American Economic Review, 84, 548–565.
Carlsson, H. and E. van Damme (1993): “Global Games and Equilibrium Selection,” Econometrica, 61, 989–1018.
Chamley, C. (1999): “Coordinating Regime Switches,” The Quarterly Journal of Economics, 114, 869–905.
Chamley, C. and D. Gale (1994): “Information Revelation and Strategic Delay in a Model of Investment,” Econometrica, 62, 1065–1085.
Cooper, R. and A. John (1988): “Coordinating Coordination Failures in Keynesian Models,” Quarterly Journal of Economics, 103, 441–463.
Goodwin, R. (1951): “The Non-linear Accelerator and the Persistence of Business Cycles,” Econometrica, 19, 1–17.
Hamilton, J. D. (1989): “A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle,” Econometrica, 57.
Kelly, F. P. (2011): Reversibility and Stochastic Networks, University of Cambridge.
Kindleberger, C. P. and R. Z. Aliber (2005): Manias, Panics, and Crashes: A History of Financial Crises, Wiley Investment Classics.
Minsky, H. P. (2008): Stabilizing an Unstable Economy, McGraw-Hill.
Morris, S. and H. S. Shin (2003): “Global Games: Theory and Applications,” in Advances in Economics and Econometrics: Proceedings of the Eigth World Congress of the Econometric Society, ed. by M. Dewatripont, L. Hansen, and S. Turnovsky, Cambridge University Press.
Rungcharoenkitkul, P. (2006): “Complementarities and Fluctuations,” Ph.D. thesis, University of Oxford.