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The Issue Of Time Inconsistency Revisited As An Extended Game

Author

Listed:
  • ROBERTO CELLINI

    (Department of Economics and Quantitative Methods, University of Catania, Corso Italia 55, 95129 Catania, Italy)

  • LUCA LAMBERTINI

    (Department of Economics, University of Bologna, Strada Maggiore 45, 40125 Bologna, Italy)

Abstract

We reformulate the monetary policy model of Barro and Gordon (1983a) by using an extended game with observable delay where the hierarchy of play between the central bank and the private sector is endogenous. This allows us to endogenise the institutional setup wherein the monetary policy game takes place. We show that positive inflation may be observed due to mixed strategies rather than time inconsistency.

Suggested Citation

  • Roberto Cellini & Luca Lambertini, 2010. "The Issue Of Time Inconsistency Revisited As An Extended Game," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 161-174.
    • Handle: RePEc:wsi:igtrxx:v:12:y:2010:i:02:n:s021919891000257x
    DOI: 10.1142/S021919891000257X
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    References listed on IDEAS

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    1. Persson, Mats & Persson, Torsten & Svensson, Lars E O, 1987. "Time Consistency of Fiscal and Monetary Policy," Econometrica, Econometric Society, vol. 55(6), pages 1419-1431, November.
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    3. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
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    More about this item

    Keywords

    Monetary policy; time consistency; extended games; C73; E52; E61;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C0 - Mathematical and Quantitative Methods - - General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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