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Uncertainty, Policy Ineffectiveness, and Long Stagnation of the Macroeconomy

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Author Info
Masanao Aoki (Department of Economics, University of California, Los Angeles)
Hiroshi Yoshikawa (Faculty of Economics, University of Tokyo)

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Abstract

The standard analysis in macroeconomics depends on the assumption of the representative agent. However, when the degree of uncertainty becomes significant, we cannot ignore a simple fact that the macroeconomy consists of a large number of heterogeneous agents. In this paper, we demonstrate the importance of the combinatory aspect. Specifically, the effectiveness of policy necessarily weakens as the degree of uncertainty rises. One might call this probrem "uncertainty trap". This may contribute to long stagnation of the macroeconomy.

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Publisher Info
Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-197.

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Length: 22 pages
Date of creation: Aug 2003
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Handle: RePEc:tky:fseres:2003cf197

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  1. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1998-2), pages 137-206. [Downloadable!]
  2. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October. [Downloadable!] (restricted)
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  3. McFadden, Daniel, 1974. "The measurement of urban travel demand," Journal of Public Economics, Elsevier, vol. 3(4), pages 303-328, November. [Downloadable!] (restricted)
  4. Martin Neil Baily, 1978. "Stabilization Policy and Private Economic Behavior," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(1978-1), pages 11-60. [Downloadable!]
  5. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
  6. Hiroshi Yoshikawa, 2003. "The Role of Demand in Macroeconomics," The Japanese Economic Review, Japanese Economic Association, vol. 54(1), pages 1-27. [Downloadable!] (restricted)
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  1. Masanao Aoki, 2004. "New Frameworks for Macroeconomic Modelings: Some Illustrative Examples," UCLA Economics Online Papers 306, UCLA Department of Economics. [Downloadable!]
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