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Demand expectations and the timing of stimulus policies

Guimaraes, Bernardo (2015) Demand expectations and the timing of stimulus policies. CFM discussion paper series (CFM-DP2015-03). Centre For Macroeconomics, London, UK.

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This paper proposes a simple macroeconomic model with staggered investment decisions. The model captures the dynamic coordination problem arising from demand externalities and fixed costs of investment. In times of low economic activity, a firm faces low demand and hence has less incentives for investing, which reinforces firms’ expectations of low demand. In the unique equilibrium of the model, demand expectations are pinned down by fundamentals and history. Owing to the beliefs that arise in equilibrium, there is no special reason for stimulus at times of low economic activity.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2015 The Authors
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations; Speculations
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
Date Deposited: 14 Dec 2017 13:20
Last Modified: 16 May 2024 12:08

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