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Local Interactions and Global Persistence

Paper:ewp-mac/0004020
From:    
Date: Mon, 24 Jul 2000 00:19:47 -0500

Title: Local Interactions and Global Persistence
Author: Nienke A. Oomes(University of Wisconsin-Madison)
Contact:
Comments: Type of Document - PDF; prepared on PC; to print on HP; pages: 35 ; figures: included
Keywords: game-theory evolution persistence inequality local interactions unemployment Keynes externalities
JEL: C63 C70 C73 E12 E24 J23 R1
EWPA-references:
Report-no: NAO-00-1

Abstract:

This paper studies the effects of local interactions on the distribution of employment in a Keynesian-type model with strategic complementarities. It is shown that rational expectations generate symmetric equilibria for any interaction structure except autarky. Under adaptive expectations, the distribution of employment converges to a rational expectations equilibrium, implying that asymmetric equilibria, or inequality, cannot persist in the long run. On the basis of both analytical and computational results, however, it is shown that symmetric equilibria are unstable in the sense that, in the presence of noise, local interactions can produce globally persistent inequality.

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A Chinese curse states May you live in intersting times. I have. Bob Parks - Jan 2006