Local Interactions and Global Persistence

Nienke A. Oomes
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Nienke A. Oomes: University of Wisconsin-Madison

Macroeconomics from EconWPA

Abstract: This paper studies the effects of local interactions on the distribution of employment in a Keynesian-type model with strategic complementarities. It is shown that rational expectations generate symmetric equilibria for any interaction structure except autarky. Under adaptive expectations, the distribution of employment converges to a rational expectations equilibrium, implying that asymmetric equilibria, or inequality, cannot persist in the long run. On the basis of both analytical and computational results, however, it is shown that symmetric equilibria are unstable in the sense that, in the presence of noise, local interactions can produce globally persistent inequality.

Keywords: game-theory; evolution; persistence; inequality; local; interactions; unemployment; Keynes; externalities (search for similar items in EconPapers)
JEL-codes: C63 C70 C73 E12 E24 J23 R1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-evo
Date: Written 2000-07-24
Note: Type of Document - PDF; prepared on PC; to print on HP; pages: 35 ; figures: included

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