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Time Consistency In Alternating‐Move Policy Games

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  • IN‐KOO CHO
  • AKIHIKO MATSUI

Abstract

We examine alternating‐move policy games where the government and the private sector alternate their moves. In contrast with the standard policy game, the set of equilibrium payoffs of the present model is bounded away from the payoff under the one‐shot Nash equilibrium, called the Kydland–Prescott outcome, and the upper bound is close to the payoff under the optimal policy (called the Ramsey policy) if the government is sufficiently patient. In other words, the Kydland–Prescott outcome is not time consistent, while the Ramsey outcome could be approximated by a time‐consistent policy of the same game.

Suggested Citation

  • In‐Koo Cho & Akihiko Matsui, 2005. "Time Consistency In Alternating‐Move Policy Games," The Japanese Economic Review, Japanese Economic Association, vol. 56(3), pages 273-294, September.
    • Handle: RePEc:bla:jecrev:v:56:y:2005:i:3:p:273-294
    DOI: 10.1111/j.1468-5876.2005.00326.x
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    File URL: https://doi.org/10.1111/j.1468-5876.2005.00326.x
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    References listed on IDEAS

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    1. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, September.
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    Cited by:

    1. Yusuke Kinai, 2011. "Optimal Degree of Commitment in a Tax Policy," Discussion Papers in Economics and Business 11-11, Osaka University, Graduate School of Economics.
    2. Libich, Jan & Stehlík, Petr, 2010. "Incorporating rigidity and commitment in the timing structure of macroeconomic games," Economic Modelling, Elsevier, vol. 27(3), pages 767-781, May.
    3. Libich, Jan, 2009. "A Note On The Anchoring Effect Of Explicit Inflation Targets," Macroeconomic Dynamics, Cambridge University Press, vol. 13(5), pages 685-697, November.
    4. Hughes Hallett, Andrew & Libich, Jan & Stehlík, Petr, 2007. "Monetary and Fiscal Policy Interaction with Various Degrees and Types of Commitment," CEPR Discussion Papers 6586, C.E.P.R. Discussion Papers.
    5. Jan Libich & Dat Thanh Nguyen & Petr Stehlík, 2011. "Monetary Exit Strategy and Fiscal Spillovers," CAMA Working Papers 2011-04, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    6. Libich Jan, 2011. "Inflation Nutters? Modelling the Flexibility of Inflation Targeting," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-36, June.
    7. Libich, Jan, 2008. "An explicit inflation target as a commitment device," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 43-68, March.
    8. Libich, Jan & Nguyen, Dat Thanh & Stehlík, Petr, 2015. "Monetary exit and fiscal spillovers," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 184-206.

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