STRATEGIC COMPLEMENTARITY SLOWS MACROECONOMIC ADJUSTMENT TO TEMPORARYSHOCKS

A number of studies have employed strategic complementarity to show th at many features of the Keynesian framework can be captured in models consistent with the microfoundations approach. We argue that strategic complementarity is an important factor in understanding why an econom y may exhibit a slow return to steady-state behavior after a temporary shock. That is, given any of a variety of factors which would cause t emporary shocks to have long-term effects, the speed with which the ec onomy returns to steady-state behavior after a temporary shock is nega tively related to the degree of strategic complementarity in the envir onment.