TY  - JOUR
AU  - Durlauf,Steven N.
TI  - Multiple Equilibria and Persistence in Aggregate Fluctuations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3629
PY  - 1992
Y2  - February 1992
UR  - http://www.nber.org/papers/w3629
L1  - http://www.nber.org/papers/w3629.pdf
N1  - Author contact info:
Steven N. Durlauf
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706-1393
Tel: 608/263-3859
Fax: 608/262-2033
E-Mail: sdurlauf@ssc.wisc.edu
AB  - This paper explores the impact of incomplete markets and strong complementarities on the time series properties of aggregate activity. We consider an economy which consists of a large number of industries whose production functions both are nonconvex and exhibit localized technological complementarities. The productivity of each industry at t is determined by the production decisions of technologically similar industries at t - 1. No markets exist to coordinate production decisions. This feature implies that aggregate output dynamics for the model are quite different from those predicted by the associated Arrow-Debreu economy. First, multiple stochastic equilibria exist in aggregate activity. These equilibria are distinguished by differences in the mean and the variance of output. Second, output movements are persistent as aggregate productivity shocks indefinitely affect real activity by shifting the economy across equilibria. As a result, the model can exhibit periods of boom and depression.
ER  -