Threshold behavior and aggregate fluctuations

This paper concerns a propagation mechanism in an economy where many individuals follow a threshold rule and interact with a positive feedback. We derive an asymptotic distribution of the propagation size when the number of the agents tends to infinity. The propagation distribution exhibits a slower...

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Bibliographic Details
Published inJournal of economic theory Vol. 127; no. 1; p. 309
Main Author Nirei, Makoto
Format Journal Article
LanguageEnglish
Published New York Elsevier Science Publishing Company, Inc 01.03.2006
Subjects
Economic theory
Propagation
Studies
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Summary:This paper concerns a propagation mechanism in an economy where many individuals follow a threshold rule and interact with a positive feedback. We derive an asymptotic distribution of the propagation size when the number of the agents tends to infinity. The propagation distribution exhibits a slower convergence to a deterministic value than it would if the agents followed a smooth adjustment policy. This gives rise to significant aggregate fluctuations in a finite lumpy-adjusting economy even when the agents are hit by small independent shocks. [PUBLICATION ABSTRACT]
ISSN:0022-0531
1095-7235