Expectations-driven productivity in the layered markets

Keiichiro Kobayashi

No 21-005E, CIGS Working Paper Series from The Canon Institute for Global Studies

Abstract: This paper explores a hypothesis that the macroeconomic expectations may affect the aggregate productivity, even in the business cycle frequencies. The economy consists of the layered markets, in which firms engage in monopolistic competition with free entry. The firms form the division of labor and produce varieties of goods, while the number of varieties determines the productivity. The number of varieties in one market is determined in equilibrium, given the expectations on the number of varieties in another market. Coordination of the expectations between the layered markets generates multiple equilibria, corresponding to high and low productivity. A policy that works on the expectations may change economic organizations and the observed state of technology. Key words: Division of labor, monopolistic competition, multiple equilibria. JEL Classification: E23, E30, O40.

Pages: 19
Date: 2021-09
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