Demand expectations and the timing of stimulus Policies

Bernardo Guimaraes and Caio Machado

No 1503, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: This paper proposes a simple macroeconomic model with staggered investment decisions. The model captures the dynamic coordination problem arising from demand externalities and fixed costs of investment. In times of low economic activity, a firm faces low demand and hence has less incentives for investing, which reinforces firms’ expectations of low demand. In the unique equilibrium of the model, demand expectations are pinned down by fundamentals and history. Owing to the beliefs that arise in equilibrium, there is no special reason for stimulus at times of low economic activity.

Keywords: Demand Expectations; Coordination; Fiscal Stimulus; Timing Frictions (search for similar items in EconPapers)
JEL-codes: D84 E32 E62 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014-12
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Demand expectations and the timing of stimulus policies (2015)
Working Paper: Demand expectations and the timing of stimulus policies (2015)
Working Paper: Demand expectations and the timing of stimulus policies (2014)
Working Paper: Demand expectations and the timing of stimulus policies (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:1503

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