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How Do Strategic Complementarity and Substitutability Shape Equilibrium Dynamics?

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  • Paul Beaudry
  • Dana S. Galizia
  • Franck Portier

Abstract

Macroeconomic dynamics are shaped by how individual incentives to spend and accumulate interact with the decisions of others. The goal of this paper is to identify—within a simple large-game-theoretic structure—which types of agent interactions favor which types of dynamic equilibrium outcomes. In particular, we extend the static analysis of Cooper and John 1988 to a dynamic setting to clarify the role of strategic complementarity and substitutability in delivering dynamics such as monotonic convergence to a unique steady state, hysteresis, endogenous cycles, and indeterminacy.

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  • Paul Beaudry & Dana S. Galizia & Franck Portier, 2024. "How Do Strategic Complementarity and Substitutability Shape Equilibrium Dynamics?," NBER Working Papers 32661, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32661
    Note: EFG ME
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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General

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