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Non-neutrality of economic policy: An application of the Tinbergen-Theil's approach to a strategic context

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  • Nicola Acocella
  • Giovanni Di Bartolomeo

Abstract

Issues of policy effectiveness and neutrality are widespread in the economic literature. They have been increasingly raised in specific contexts within the class of LQ (linear-quadratic) policy games in the last 20 years, notably with reference to monetary policy. The more general conditions ensuring nonneutrality in a strategic environment remain however to be inquired. We fill this gap by applying the classical theory of economic policy to a strategic context. This is also useful to highlight some existence conditions for policy game solutions. We restrict ourselves to the common LQ-games in a static perfect information framework, but our simple logic can be extended to other more general situations.

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Bibliographic Info

Paper provided by University of Rome La Sapienza, Department of Public Economics in its series Working Papers with number 82.

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Length: 62
Date of creation: Jul 2005
Date of revision:
Handle: RePEc:sap:wpaper:wp82

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Keywords: LQ-policy games; policy ineffectiveness; controllability.;

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References

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  1. Francesco Lippi, 2003. "Strategic Monetary Policy with Non-Atomistic Wage Setters," Review of Economic Studies, Wiley Blackwell, vol. 70(4), pages 909-919, October.
  2. Acocella, Nicola & Di Bartolomeo, Giovanni, 2004. "Non-neutrality of monetary policy in policy games," European Journal of Political Economy, Elsevier, vol. 20(3), pages 695-707, September.
  3. Cubitt, Robin P, 1997. " Stagflationary Bias and the Interaction of Monetary Policy and Wages in a Unionized Economy," Public Choice, Springer, vol. 93(1-2), pages 165-78, October.
  4. Coricelli, Fabrizio & Cukierman, Alex & Dalmazzo, Alberto, 2001. "Economic Performance and Stabilization Policy in a Monetary Union with Imperfect Labour and Goods Markets," CEPR Discussion Papers 2745, C.E.P.R. Discussion Papers.
  5. Acocella, Nicola & Di Bartolomeo, Giovanni & Hibbs Jr., Douglas A., 2004. "Labor market regimes and the effects of monetary policy," Working Papers in Economics 145, University of Gothenburg, Department of Economics, revised 22 Apr 2005.
  6. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414.
  7. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  8. Acocella, Nicola & Ciccarone, Giuseppe, 1997. " Trade Unions, Nonneutrality and Stagflation," Public Choice, Springer, vol. 91(2), pages 161-78, April.
  9. Cukierman, Alex & Lippi, Francesco, 1999. "Labour Markets and Monetary Union: A Strategic Analysis," CEPR Discussion Papers 2236, C.E.P.R. Discussion Papers.
  10. Nicola Acocella & Giovanni Di Bartolomeo, 2005. "Tinbergen And Theil Meet Nash: Controllability In Policy Games," Macroeconomics 0504036, EconWPA, revised 06 Sep 2005.
  11. Coricelli, Fabrizio & Cukierman, Alex & Dalmazzo, Alberto, 2000. "Monetary Institutions, Monopolistic Competition, Unionized Labour Markets And Economic Performance," CEPR Discussion Papers 2407, C.E.P.R. Discussion Papers.
  12. Turnovsky, Stephen J & Basar, Tamer & d'Orey, Vasco, 1988. "Dynamic Strategic Monetary Policies and Coordination in Interdependent Economies," American Economic Review, American Economic Association, vol. 78(3), pages 341-61, June.
  13. Cubitt, Robin P, 1992. "Monetary Policy Games and Private Sector Precommitment," Oxford Economic Papers, Oxford University Press, vol. 44(3), pages 513-30, July.
  14. Holly,Sean & Hughes Hallet,Andrew, 2010. "Optimal Control, Expectations and Uncertainty," Cambridge Books, Cambridge University Press, number 9780521126335.
  15. Detken, Carsten & Gartner, Manfred, 1992. " Governments, Trade Unions and the Macroeconomy: An Expository Analysis of the Political Business Cycle," Public Choice, Springer, vol. 73(1), pages 37-53, January.
  16. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, September.
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Cited by:
  1. Wieliczko, Barbara, 2012. "Future CAP - food security and safety are the key," 126th Seminar, June 27-29, 2012, Capri, Italy 126039, European Association of Agricultural Economists.

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