Bounded Rationality and Strategic Complementarity in a Macroeconomic Model

Policy Effects, Persistence and Multipliers

Bibliographic Data

ID9704191
AuthorsAntúlio N Bomfim (Federal Reserve Board, Washington), Francis X Diebold (University of Pennsylvania)
Year1997
Volume107
Issue444
Pages1358-1374
Publication date1997-09-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/j.1468-0297.1997.tb00052.x
OpenAlexW2107428364
LanguageEN
Citations received1
References cited22

Motivated by recent developments in the bounded rationality and strategic complementarity literatures, we examine an intentionally simple and stylised aggregative economic model, when the assumptions of fully rational expectations and no strategic interactions are relaxed. We show that small deviations from rational expectations, taken alone, lead only to small deviations from classical policy‐ineffectiveness, but that the situation can change dramatically when strategic complementarity is introduced. Strategic complementarity magnifies the effects of even small departures from rational expectations, producing equilibria with policy effectiveness, output persistence and multiplier effects

Bounded function · Bounded rationality · Complementarity (molecular biology · Econometrics · Economics · Mathematical economics · Microeconomics · Political science · Rational expectations · Rationality · Strategic interaction · Economic theories and models · Fiscal Policy and Economic Growth · Mathematics · Monetary Policy and Economic Impact

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