Participation Dynamics: Sunspots and Cycles

27 Pages Posted: 29 Mar 2010 Last revised: 30 Mar 2010

See all articles by Satyajit Chatterjee

Satyajit Chatterjee

Federal Reserve Bank of Philadelphia

Russell Cooper

University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER)

B. Ravikumar

Federal Reserve Bank of Saint Louis

Date Written: September 1990

Abstract

This paper investigates the possibility of sunspots equilibria and endogenous cycles in an overlapping generations model with strategic interactions. We consider an economy with imperfectly competitive product markets. There is a participation decision on the part of prospective firms and a strategic complementarity emerges from the interaction of firms in their entry decisions both over time and across sectors. When these complementarities are sufficiently strong, multiple steady state equilibria will exist. Sunspot equilibria can then be constructed as randomizations in the neighborhood of these steady states. We relate the properties of our sunspot equilibria to aggregate fluctuations, with particular emphasis on the dynamics of entry and exit. We also show that if intratemporal strategic interactions are sufficiently strong, then cycles may exist. Additional sunspot equilibria can be found in the neighborhood of these cycles. Finally, we show that if inter temporal linkages are sufficiently strong, cycles will not exist.

Suggested Citation

Chatterjee, Satyajit and Cooper, Russell W. and Ravikumar, B., Participation Dynamics: Sunspots and Cycles (September 1990). NBER Working Paper No. w3438. Available at SSRN: https://ssrn.com/abstract=1579574

Satyajit Chatterjee (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

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Russell W. Cooper

University of Texas at Austin - Department of Economics ( email )

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United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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B. Ravikumar

Federal Reserve Bank of Saint Louis ( email )

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Saint Louis, MO 63011
United States

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