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Dynamic Coordination and the Optimal Stimulus Policies

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  • Bernardo Guimaraes
  • Caio Machado

Abstract

This article studies stimulus policies in a simple macroeconomic model featuring a dynamic coordination problem that arises from demand externalities and fixed costs of investment. In times of low economic activity, firms face low demand and hence have lower incentives for investing, which reinforces their low‐demand expectations. In a benchmark case with no shocks, the economy might get trapped in a low‐output regime and a social planner would be particularly keen to incentivise investment at times of low economic activity. However, this result vanishes once shocks are considered.

Suggested Citation

  • Bernardo Guimaraes & Caio Machado, 2018. "Dynamic Coordination and the Optimal Stimulus Policies," Economic Journal, Royal Economic Society, vol. 128(615), pages 2785-2811, November.
    • Handle: RePEc:wly:econjl:v:128:y:2018:i:615:p:2785-2811
    DOI: 10.1111/ecoj.12547
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    Cited by:

    1. Bernardo Guimaraes & Gabriel Jardanovski, 2022. "Who matters in dynamic coordination problems?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(3), pages 452-469, June.
    2. Caio Machado, 2024. "Coordinating in Financial Crises," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 54, October.
    3. Bernardo Guimaraes & Caio Machado & Marcel Ribeiro, 2016. "A Model of the Confidence Channel of Fiscal Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(7), pages 1363-1395, October.
    4. Robertas Zubrickas, 2020. "Contingent wage subsidy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 1105-1119, August.
    5. Bernardo Guimaraes & Caio Machado & Ana E. Pereira, 2020. "Dynamic coordination with timing frictions: Theory and applications," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(3), pages 656-697, June.

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