ABSTRACT
A common structural feature of New Keynesian models is the presence of positive externalities among (at least some) economic agents (Drazen 1987) and the presence of strategic complementarity, i.e. ‘the interaction between agents at the level of strategies’ (Cooper and John 1988). With strategic complementarity and positive externalities, economic agents would prefer high activity (and employment) levels to low activity (and employment) levels. However, either the preferred situation cannot be achieved as a Nash equilibrium – hence there is a cooperation failure – or this situation is one in a range of multiple Nash equilibria. If the Pareto dominant equilibrium in the range is not attained there is a coordination failure.1
