Fiscal- Monetary Policy and Debt Management: a Two Stage Dynamic Analysis
AbstractThis 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 playersâ€™ behaviour to be coordinated and correlated.
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Bibliographic InfoPaper provided by University of Rome La Sapienza, Department of Public Economics in its series Working Papers with number 74.
Date of creation: Jun 2004
Date of revision:
monetary and fiscal policies; differential games; correlated equilibrium.;
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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