Aggregate Pattern of Time-dependent Adjustment Rules, II: Strategic Complementarity and Endogenous Nonsynchronization

Abstract

This paper provides an explanation for an important institutional feature of staggered time-dependent adjustment rules assumed in a number of macroeconomic models (Fischer, 1977; Taylor, 1980; Blanchaid, 1986). It identifies strategic complementarity as the crucial factor leading to nonsynchronized decisions in a game-theoretic framework. It first shows that nonsynchronization is the equilibrium outcome in an infinite-horizon game in which strategic complementarity is present and each of the players chooses repeatedly both the contract length and a strategic variable. By pursuing Tirole's (1988) interpretation of a nonsynchronized-move dynamic game as a series of games with 'symmetric Stackelberg leadership', it is further suggested that the relationship between strategic complementarity and the benefit to the Stackelberg follower provides the insight to the game-theoretic explanation of nonsynchronization. The results of this paper reveal a link between strategic complementarity and nonsynchronization - two important macroeconomic features