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Policy games, policy neutrality and Tinbergen controllability under rational expectations

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  • Di Bartolomeo Giovanni
  • Hughes Hallett Andrew
  • Acocella Nicola

Abstract

This paper shows the relationship between static controllability (the well-known Tinbergen golden rule), and the existence and other properties of the Nash equilibrium in a dynamic setting with rational expectations for future behavior. We show how to determine the existence of equilibrium outcomes; the conditions under which no equilibrium exists; and who will get to dominate (or who will find their policies to have become ineffective) in those equilibria, without having to compute and enumerate all the possible equilibria directly.

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File URL: http://wp.comunite.it/data/wp_no_34_2008.pdf
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Bibliographic Info

Paper provided by Department of Communication, University of Teramo in its series wp.comunite with number 0034.

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Date of creation: Jan 2008
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Handle: RePEc:ter:wpaper:0034

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References

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  1. Blanchard, Olivier J & Galí, Jordi, 2005. "Real Wage Rigidities and the New Keynesian Model," CEPR Discussion Papers 5375, C.E.P.R. Discussion Papers.
  2. Evans, George W & Honkapohja, Seppo, 2001. "Expectations and the Stability Problem for Optimal Monetary Policies," CEPR Discussion Papers 2805, C.E.P.R. Discussion Papers.
  3. Söderström, Ulf, 2000. "Monetary policy with uncertain parameters," Working Paper Series 0013, European Central Bank.
  4. Stehn, Sven Jari & Vines, David, 2008. "Strategic Interactions between an Independent Central Bank and a Myopic Government with Government Debt," CEPR Discussion Papers 6913, C.E.P.R. Discussion Papers.
  5. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  6. Pierpaolo Benigno & Michael Woodford, 2004. "Optimal monetary and fiscal policy: a linear-quadratic approach," International Finance Discussion Papers 806, Board of Governors of the Federal Reserve System (U.S.).
  7. Evi Pappa, 2004. "Do the ECB and the Fed really need to cooperate? Optimal monetary policy in a two-country world," LSE Research Online Documents on Economics 512, London School of Economics and Political Science, LSE Library.
  8. N. Acocella & G. Bartolomeo & Andrew Hallett, 2006. "Controllability in Policy Games: Policy Neutrality and the Theory of Economic Policy Revisited," Computational Economics, Society for Computational Economics, vol. 28(2), pages 91-112, September.
  9. Leitemo, Kai & Söderström, Ulf, 2008. "Robust Monetary Policy In The New Keynesian Framework," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S1), pages 126-135, April.
  10. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  11. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  12. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-30, October.
  13. Gnocchi, Stefano, 2006. "Optimal simple monetary policy rules and non-atomistic wage setters in a New-Keynesian framework," Working Paper Series 0690, European Central Bank.
  14. Olivier Blanchard & Jordi Gali, 2007. "A New Keynesian Model with Unemployment," Kiel Working Papers 1335, Kiel Institute for the World Economy.
  15. Gylfason, Thorvaldur & Lindbeck, Assar, 1994. " The Interaction of Monetary Policy and Wages," Public Choice, Springer, vol. 79(1-2), pages 33-46, April.
  16. Athey, Susan, 2001. "Single Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Econometrica, Econometric Society, vol. 69(4), pages 861-89, July.
  17. Acocella Nicola & Di Bartolomeo Giovanni, 2007. "Towards a new theory of economic policy: Continuity and innovation," wp.comunite 0020, Department of Communication, University of Teramo.
  18. Acocella, N. & Di Bartolomeo, G., 2006. "Tinbergen and Theil meet Nash: Controllability in policy games," Economics Letters, Elsevier, vol. 90(2), pages 213-218, February.
  19. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 1-26, January.
  20. Robert J. Barro & David B. Gordon, 1984. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  21. Holly,Sean & Hughes Hallet,Andrew, 1989. "Optimal Control, Expectations and Uncertainty," Cambridge Books, Cambridge University Press, number 9780521264440, November.
  22. George W. Evans & Seppo Honkapohja, 2002. "Monetary Policy, Expectations and Commitment," University of Oregon Economics Department Working Papers 2005-11, University of Oregon Economics Department, revised 06 Apr 2005.
  23. Acocella, Nicola & Di Bartolomeo, Giovanni & Hallett, Andrew Hughes, 2007. "Dynamic Controllability With Overlapping Targets: Or Why Target Independence May Not Be Good For You," Macroeconomic Dynamics, Cambridge University Press, vol. 11(02), pages 202-213, April.
  24. Glenn D. Rudebusch & John C. Williams, 2006. "Revealing the Secrets of the Temple: The Value of Publishing Central Bank Interest Rate Projections," NBER Working Papers 12638, National Bureau of Economic Research, Inc.
  25. Fisher, P. G. & Hallett, A. J. Hughes, 1988. "Efficient solution techniques for linear and non-linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 12(4), pages 635-657, November.
  26. Hughes Hallett, Andrew J, 1989. "Econometrics and the Theory of Economic Policy: The Tinbergen-Theil Contributions 40 Years On," Oxford Economic Papers, Oxford University Press, vol. 41(1), pages 189-214, January.
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Cited by:
  1. Hughes Hallett, Andrew & Di Bartolomeo, Giovanni & Acocella, Nicola, 2012. "A general theory of controllability and expectations anchoring for small-open economies," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 397-411.
  2. Huiping Yuan & Stephen M. Miller, 2011. "The Optimality and Controllability of Discretionary Monetary Policy," Working papers 2011-17, University of Connecticut, Department of Economics.

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