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Aggregate demand externalities, intermediate inputs and multiple equilibria

Author: Fatás, Antonio INSEAD Area: Economics and Political Science Series: Working Paper ; 95/67/EPS Publisher: Fontainebleau : INSEAD, 1995.Language: EnglishDescription: 7 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: We show that the presence of intermediate inputs magnifies the multiplier effects of pecuniary aggregate demand externalities in an imperfectly competitive model. In our setting, the presence of intermediate inputs is a necessary condition for the existence of multiple equilibria. Moreover, the range of parameter values for which multiple equilibria are possible is increasing in the share of intermediate inputs
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We show that the presence of intermediate inputs magnifies the multiplier effects of pecuniary aggregate demand externalities in an imperfectly competitive model. In our setting, the presence of intermediate inputs is a necessary condition for the existence of multiple equilibria. Moreover, the range of parameter values for which multiple equilibria are possible is increasing in the share of intermediate inputs

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