Strategic Complementarity Slows Macroeconomic Adjustment to Temporary Shocks

Seonghwan Oh and Michael Waldman

Economic Inquiry, 1994, vol. 32, issue 2, 318-29

Abstract: A number of studies have employed strategic complementarity to show that many features of the Keynesian framework can be captured in models consistent with the microfoundations approach. The authors argue that strategic complementarity is an important factor in understanding why an economy may exhibit a slow return to steady-state behavior after a temporary shock. That is, given any of a variety of factors that would cause temporary shocks to have long-term effects, the speed with which the economy returns to steady-state behavior after a temporary shock is negatively related to the degree of strategic complementarity in the environment. Copyright 1994 by Oxford University Press.

Date: 1994
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