We use evolutionary game theory in order to determinate the long-run behaviours in the monetary policy game. The model we present firstly assumes the government as well as the private sector are boundedly rational players. The behavioral rule of the government is imitation of the best player whereas the public decision follows adaptive expectations. We also question the relevance of the model when the public can make partly rational expectations. In the evolutionary monetary policy game defined, we find that the long-run equilibrium is Pareto-efficient when the government strategic adjustment is lower than the private sector rigidities. This result reflects that the resolution of governments to follow a strategy in the long-run have played a crucial part in the disinflation process, even if this process can generate short-run costs. Under partly rational expectations, it turns out that previous results are not modified, meaning that the results in the Barro-Gordon model further relies on the perfect rationality given to the government rather than on the rational expectations. Moreover, the low inflation strategy turns out to be credible with rational expectations in our model (once this strategy has been experienced as the best one), since the public knows the imitative process gives the low inflation strategy as the right choice.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Find related papers by JEL classification: E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: