Equilibrium Selection in Games with Macroeconomic Complementarities

Oddvar M. Kaarboe, Alexander F. Tieman

Research output: Working paperProfessional

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Abstract

We apply the stochastic evolutionary approach of equilibrium selection tomacroeconomic models in which a complementarity at the macro level ispresent. These models often exhibit multiple Pareto-ranked Nash equilibria,and the best response-correspondence of an individual increases with ameasure of the aggregate state of the economy. Our main theoretical resultshows how the equilibrium that is singled out by the evolutionary dynamicsis directly related to the underlying externality that creates themultiplicity problem in the underlying macroeconomic stage game. We alsoprovide clarifying examples from the macroeconomic literature.
Original languageEnglish
Place of PublicationAmsterdam
PublisherTinbergen Instituut
Publication statusPublished - 1999

Publication series

NameDiscussion paper TI
No.99-096/1

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    Kaarboe, O. M., & Tieman, A. F. (1999). Equilibrium Selection in Games with Macroeconomic Complementarities. (Discussion paper TI; No. 99-096/1). Tinbergen Instituut.