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Cheating for the common good in a Macroeconomic policy game

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  • Francisco Álvarez González

    (Université de la Méditerranée (Aix-MarseilleII))

  • Christophe Deissenberg

    (Universidad Complutense, Madrid, Spain)

Abstract

This paper presents a simple repeated-game model of interaction between an optimizing government and the private sector. Two polar cases are considered: (a) the private sector is represented by a single agent; and (b) there is a continuum of heterogenous atomistic private agents. In both cases, the government starts each repetition by making a non-binding announcement about its future actions. The players have complete and perfect information, with one exception: the private agents do not know whether or not the government will act as announced. Thus, each private agent ieither behaves with probability ði as if it trusted the announcement, or plays with probability 1 . ði as a Stackelberg leader. After observing the reaction of the private sector, the government

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Bibliographic Info

Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico in its series Documentos de Trabajo del ICAE with number 0104.

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Length: 43 page
Date of creation: 2001
Date of revision:
Handle: RePEc:ucm:doicae:0104

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Related research

Keywords: Macroeconomic policy-making; Kydland-Prescott model; time inconsistency; reinforcement learning; reversed Stackelberg games; optimal cheating strategies; reputation; credibility.;

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References

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  1. McCallum, Bennett T., 1997. "Crucial issues concerning central bank independence," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 99-112, June.
  2. T. Borgers & R. Sarin, 2010. "Learning Through Reinforcement and Replicator Dynamics," Levine's Working Paper Archive 380, David K. Levine.
  3. Kenneth Rogoff, 1986. "Reputational Constraints on Monetary Policy," NBER Working Papers 1986, National Bureau of Economic Research, Inc.
  4. David Backus & John Driffill, 1984. "Inflation and Reputation," Working Papers 560, Queen's University, Department of Economics.
  5. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  6. Hughes Hallett, Andrew J, 1991. "Difference Games and Policy Evaluation: A Comment," Oxford Economic Papers, Oxford University Press, vol. 43(4), pages 637-43, October.
  7. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
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Cited by:
  1. Jasmina Arifovic & Herbert Dawid & Christophe Deissenberg & Olena Kostyshyna, 2008. "Learning Benevolent Leadership in a Heterogenous Agents Economy," Working Papers halshs-00339761, HAL.

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