Uncertainty, policy ineffectiveness, and long stagnation of the macroeconomy

The standard analysis in macroeconomics depends on the assumption of the representative agent. However, when the degree of uncertainty becomes significant, we cannot ignore a simple fact that the macroeconomy consists of a large number of heterogeneous agents. In this paper, we demonstrate the importance of the combinatorial aspect. Specifically, the effectiveness of policy necessarily weakens as the degree of uncertainty rises. One might call this problem “uncertainty trap”. This may contribute to long stagnation of the macroeconomy.