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Robust predictions in dynamic policy games

Author

Listed:
  • Passadore, Juan

    (IMF, Western Hemisphere Department)

  • Xandri Antuna, Juan Pablo

    (Department of Economics, Universidad de Los Andes, Chile)

Abstract

Dynamic policy games feature a wide range of equilibria. This paper provides a methodology for obtaining robust predictions. We focus on a model of sovereign debt, although our methodology applies to other settings, such as models of monetary policy or capital taxation. Our main result is a characterization of distributions over outcomes that are consistent with a subgame perfect equilibrium conditional on the observed history. We illustrate our main result by computing, conditional on an observed history, bounds across all equilibria on: the maximum probability of a crisis, means, variances, and covariances over debt prices.

Suggested Citation

  • Passadore, Juan & Xandri Antuna, Juan Pablo, 2024. "Robust predictions in dynamic policy games," Theoretical Economics, Econometric Society, vol. 19(4), November.
    • Handle: RePEc:the:publsh:4489
    as

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    References listed on IDEAS

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    1. Bloise, Gaetano & Polemarchakis, Herakles & Vailakis, Yiannis, 2017. "Sovereign debt and incentives to default with uninsurable risks," Theoretical Economics, Econometric Society, vol. 12(3), September.
    2. Forges, Francoise M, 1986. "An Approach to Communication Equilibria," Econometrica, Econometric Society, vol. 54(6), pages 1375-1385, November.
    3. , & ,, 2013. "Selection-free predictions in global games with endogenous information and multiple equilibria," Theoretical Economics, Econometric Society, vol. 8(3), September.
    4. Waki, Yuichiro & Dennis, Richard & Fujiwara, Ippei, 2018. "The optimal degree of monetary-discretion in a New Keynesian model with private information," Theoretical Economics, Econometric Society, vol. 13(3), September.
    5. Chang, Roberto, 1998. "Credible Monetary Policy in an Infinite Horizon Model: Recursive Approaches," Journal of Economic Theory, Elsevier, vol. 81(2), pages 431-461, August.
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    Cited by:

    1. Bloise, Gaetano & Vailakis, Yiannis, 2024. "Sovereign debt crises and low interest rates," Journal of International Economics, Elsevier, vol. 150(C).

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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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