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Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis

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Author Info
Giovanni Di Bartolomeo
Debora Di Gioacchino

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Abstract

This paper studies the interaction between two autonomous policymakers, the central bank and the government, in managing public debt as the result of a two-stage game. In the first stage the institutional regime is established. This determines the equilibrium solution to be applied in the second stage, in which a differential game is played between the two policymakers. It is shown that, if the policymakers can communicate before the game is played, (multiple-equilibrium) coordination problems can be solved by using the concept of correlated equilibrium. Unlike Nash equilibrium, which only allows for individualistic and independent behaviour, a correlated equilibrium allows for the players’ behaviour to be coordinated and correlated.

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Publisher Info
Paper provided by Sapienza University of Rome, Department of Public Economics in its series Working Papers with number 74.

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Length: 30 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:sap:wpaper:74

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Related research
Keywords: monetary and fiscal policies; differential games; correlated equilibrium.;

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Find related papers by JEL classification:
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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