Bounded Rationality and Strategic Complementarity in a Macroeconomic Model: Policy Effects, Persistence and Multipliers / Antulio N. Bomfim, Francis X. Diebold.

Bomfim, Antulio N. [Browse]
Cambridge, Mass. National Bureau of Economic Research 1996.
1 online resource: illustrations (black and white);


  • Working Paper Series (National Bureau of Economic Research) no. w5482. [More in this series]
  • NBER working paper series no. w5482
Summary note
Motivated by recent developments in the bounded rationality and strategic complementarity literatures, we examine an intentionally simple and stylized aggregative economic model, when the assumptions of fully rational expectations and no strategic interactions are relaxed. We show that small deviations from rational expectations, taken alone, lead only to small deviations from classical policy- ineffectiveness, but that the situation can change dramatically when strategic complementarity is introduced. Strategic complementarity magnifies the effects of even small departures from rational expectations, producing equilibria with policy effectiveness, output persistence and multiplier effects.
March 1996.
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Bounded Rationality and Strategic Complementarity in a Macroeconomic Model
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