 Short-sighted managers and learnable sunspot equilibriaPaul Shea () Journal of Macroeconomics, 2016, vol. 48, issue C, 117-126 Abstract: This paper assumes that firm managers make choices over a finite horizon while households plan over an infinite horizon. Following Shea (2013), I assume that labor exhibits firm-specific learning by doing so that newly employed labor is less productive than experienced labor. In the model, optimization requires that firm managers make conjectures about how their choices affect the labor demand choices of their successors. The model yields two steady states; one where the firm manager behaves as if she cares only about the present period and another where she is forward looking. The former (myopic) steady state usually exhibits higher output than the non myopic steady state. The non-myopic steady state also exhibits two regions of indeterminacy where extraneous, self-fulfilling expectational errors add volatility. One of these regions of indeterminacy is usually stable under adaptive learning while the other never is stable under learning. Keywords: Multiple equilibria; Finite horizons; Adaptive learning; Sunspots (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:48:y:2016:i:c:p:117-126 DOI: 10.1016/j.jmacro.2016.02.001 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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