Strategic complementarity in business formation: Aggregate fluctuations and sunspot equilibria

Satyajit Chatierjee, Russell Cooper, B. Ravikumar

Research output: Contribution to journalArticle

49 Citations (Scopus)

Abstract

The possibility of sunspot equilibria and endogenous cycles are explored in a two-sector overlapping-generations model with entry. It is shown that if prospective entrants act oligopolistically as producers but competitively as consumers then a strategic complementarity between the entry decisions of agents across sectors and across time may arise. If the complementarity is sufficiently strong, the economy will have multiple, Pareto-ranked steady states. Stationary sunspot equilibria can then be constructed as a randomization between allocations in the neighbourhood of the multiple steady states providing a source of aggregate fluctuations.

Original languageEnglish (US)
Pages (from-to)795-811
Number of pages17
JournalReview of Economic Studies
Volume60
Issue number4
DOIs
StatePublished - 1993
Externally publishedYes

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Aggregate fluctuations
Business formation
Strategic complementarity
Sunspot equilibria
Pareto
Complementarity
Multiple steady states
Endogenous cycles
Randomization
Overlapping generations model

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Strategic complementarity in business formation : Aggregate fluctuations and sunspot equilibria. / Chatierjee, Satyajit; Cooper, Russell; Ravikumar, B.

In: Review of Economic Studies, Vol. 60, No. 4, 1993, p. 795-811.

Research output: Contribution to journalArticle

Chatierjee, Satyajit ; Cooper, Russell ; Ravikumar, B. / Strategic complementarity in business formation : Aggregate fluctuations and sunspot equilibria. In: Review of Economic Studies. 1993 ; Vol. 60, No. 4. pp. 795-811.
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