State Manipulation and Asymptotic Inefficiency in a Dynamic Model of Monetary Policy
AbstractA simple folk theorem of repeated games states that Pareto-efficient outcomes can be achieved in a perfect equilibrium where deviations are punished by a reversion to Nash equilibrium of the associated stage game (Nash threats equilibrium), provided that players are sufficiently patient. In a dynamic version of a well-known monetary policy game we show that such asymptotic efficiency may not be possible, as the presence of a state variable introduces the possibility of state manipulation. Moreover, the lowest inflation rate in Nash threats equilibrium may be increasing as players become more patient.
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Bibliographic InfoPaper provided by Exeter University, Department of Economics in its series Discussion Papers with number 9605.
Date of creation: 1996
Date of revision:
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More information through EDIRC
State manipulation; Asymptotic inefficiency; Monetary policy; Unemployment persistence; Dynamic games;
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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