A Nash Threat Game of Passing Through Exchange Rate Mechanism II

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A Nash Threat Game of Passing Through Exchange Rate Mechanism II

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Christian Fahrholz () (School of Business and Economics, Friedrich-Schiller University Jena, Germany.)

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Christian H. Fahrholz

Abstract

Following entrance into the European Union, Central Eastern European Countries (CEECs) are expected to join the European Monetary Union (EMU). These countries may incur considerable costs over the course of their passing through the required Exchange Rate Mechanism II (ERM-II). However, with enough bargaining leverage CEECs may be able to pass some of these costs on to current EMU-members. In turn, a CEEC's leverage depends on their ability to wield successful brinkmanship via an exchange-rate policy characterized by a 'threaten-thy-neighbor' strategy. A two-stage Nash-threat game captures the essentials of the CEECs' phase of ERM-II pass through.

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Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek in its series Jena Economic Research Papers in Economics with number 2007-050.

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Date of creation: 22 Aug 2007
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Handle: RePEc:jrp:jrpwrp:2007-050

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F51 - International Economics - - International Relations and International Political Economy - - - International Conflicts; Negotiations; Sanctions

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-08-27 (All new papers)
NEP-CBA-2007-08-27 (Central Banking)
NEP-EEC-2007-08-27 (European Economics)
NEP-GTH-2007-08-27 (Game Theory)
NEP-IFN-2007-08-27 (International Finance)

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Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April. [Downloadable!] (restricted)
Richard E. Baldwin & Joseph F. Francois & Richard Portes, 1997. "The costs and benefits of eastern enlargement: the impact on the EU and central Europe," Economic Policy, CEPR, CES, MSH, vol. 12(24), pages 125-176, 04. [Downloadable!] (restricted)

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