Macroeconomic Complementarities, Coordination failures and Economic Fluctuations: from multiplicity of equilibria to disequilibrium dynamics

Alain Raybaut

Working Papers from HAL

Abstract: This contribution focuses on strategies for modeling business cycles in terms of coordination failures caused by various forms of macroeconomic complementarities that emerged in the late 1980s and early 1990s. We first identify the different solutions adopted to make the analysis dynamic, leaving aside the specific literature on coordination games and beliefs. In this perspective, we also endeavor to characterize the institutional context in which these works have developed. Secondly, the article focuses on the approaches with complementarities and multiple equilibria involving various forms of bounded rationality. We thus develop a new variant of a formal framework proposed by Franke (2001) to deduce analytical results and numerical examples on the dynamics. Finally, we conclude on the specificity of these modeling strategies and the reasons for their decline in the 90s.

Date: 2023
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