CFDP 745

Coordinating Coordination Failures in Keynesian Models

Author(s): 

Publication Date: April 1985

Pages: 37

Abstract: 

This paper focuses on the importance of strategic complementarity in agents’ payoff functions as a basis for macroeconomic coordination failures. We first analyze an abstract game and find that inefficient equilibria and a multiplier process may arise in the presence of strategic complementarities (essentially positively sloped reaction curves). We then place additional economic content on complementarities arising from production functions, matching technologies and commodity demand functions in a multi-sector economy.