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Academic Papers Artículo en revista académica

Dynamic Coordination and the Optimal Stimulus Policies

  • person Caio Machado

    Bernardo Guimaraes

  • class Economic Journal, November 2018. Vol. 128, Issue Nº 615. Pages 2785-2811

Abstract: This article studies stimulus policies in a simple macroeconomic model featuring a dynamic coordination problem that arises from demand externalities and fixed costs of investment. In times of low economic activity, firms face low demand and hence have lower incentives for investing, which reinforces their low‐demand expectations. In a benchmark case with no shocks, the economy might get trapped in a low‐output regime and a social planner would be particularly keen to incentivise investment at times of low economic activity. However, this result vanishes once shocks are considered.