search query: @indexterm Disequilibrium theory / total: 42
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| Author: | Franke, R. |
| Title: | Equilibrium selection under cyclical disequilibrium dynamics |
| Journal: | Oxford Economic Papers
2001 : JAN, VOL. 53:1, p. 166-186 |
| Index terms: | EQUILIBRIUM ANALYSIS DISEQUILIBRIUM THEORY ECONOMIC CONDITIONS |
| Language: | eng |
| Abstract: | The paper considers an abstract economy exhibiting strategic complementarity and multiple, isolated Nash equilibria. It introduces explicit disequilibrium adjustments, which are based on a combination of adaptive and extrapolative forecasts. In this way the locally stable equilibria are typically approached in a cyclical manner. Globally, the phenomenon of overshooting increases the likeliness of regime shifting in response to exogenous shocks. In particular, even undampened cyclical behaviour is possible after a one-time shock. A general conclusion is that the strong propagation effects make the economy much more susceptible to path-dependence than it would be under the equilibrium selection hypothesis conventionally employed in this framework. |
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