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| Author: | Dixit, A. |
| Title: | Analytical approximations in models of hysteresis |
| Journal: | Revue Francaise de Comptabilite
1991 : JAN, VOL. 58:193, p.141-151 |
| Index terms: | INVESTMENT COSTS MODELS EQUATIONS DECISION MAKING NUMERICAL COMPUTATION |
| Language: | eng |
| Abstract: | Decisions made under ongoing uncertainty and costly reversibility entail a range of the state variable where inaction is optimal, which in turn produces hysteresis-permanent effects of temporary shifts. The range in usually defined by non-linear equations that need numerical solutions. Here a technique of analytical approaximations is developed and applied to two models-menu costs and investment. The resulting explicit solutions help clarify why hysteresis is important even for small irreversibility. In the menu cost model hysteresis is two orders of magnitude larger than under the Akelof-Yellen or Mankiw assumptions. |
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