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Market selection with an endogenous state

Thomas Norman

Journal of Mathematical Economics, 2020, vol. 91, issue C, 51-59

Abstract: This paper explores market selection in general equilibrium when the state of the economy is endogenous. Analysis of consumer survival in this case requires solution of the model’s dynamics, for which evolutionary game theory can be useful; for instance, if the state and beliefs are Markovian and utility logarithmic, then the dynamics of consumption shares are described by the replicator dynamics. This is illustrated in a simple exchange economy, and in a standard monetary economy with multiple long-run equilibria where a plausible form of inflation targeting serves to destabilize a liquidity trap in favor of the target equilibrium.

Keywords: Market selection; Replicator dynamics; Heterogeneous consumers; Taylor rule; Zero lower bound; Liquidity trap (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:91:y:2020:i:c:p:51-59

DOI: 10.1016/j.jmateco.2020.08.006

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