IDEAS home Printed from https://ideas.repec.org/p/red/sed014/723.html
   My bibliography  Save this paper

Coordination Capital

Author

Listed:
  • Mathieu Taschereau-Dumouchel

    (University of Pennsylvania - Wharton)

  • Edouard Schaal

    (New York University)

Abstract

We propose a model of coordination failures for business cycles in which agents learn to coordinate over time. The economy features an aggregate demand externality that leads to multiple equilibria under complete information. Under incomplete information, a group of informed agents receive private signals about the fundamentals of the economy, while a group of uninformed agents only observe past public realizations of aggregate demand. The economy takes a long time to recover from recessions because their coordination capital is destroyed: agents lose their ability to coordinate on the good outcome. In a recovery, informed agents wait for the uninformed to take action before resuming production, while uninformed agents infer the level of the fundamental by observing the endogenously low level of demand. As a result, uninformed agents keep pessimistic beliefs about the fundamental for an extended period of time and downturns become very protracted. The equilibrium is inefficient and we characterize optimal policy interventions.

Suggested Citation

  • Mathieu Taschereau-Dumouchel & Edouard Schaal, 2014. "Coordination Capital," 2014 Meeting Papers 723, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:723
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2014/paper_723.pdf
    Download Restriction: no
    ---><---

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed014:723. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.