A Complementary Note On The Issue Of Time Inconsistency Revisited As An Extended Game
Cellini and Lambertini endogenize through a timing game the moves of the central bank and the private sector in a model of monetary policy la Barro and Gordon. They find a multiplicity of equilibria, as the two Stackelberg outcomes emerge as the solutions of the timing game, with different inflation levels. By using the risk-dominance criterion to select the equilibrium we prove that there is a discontinuity in the inflation bias, depending on the inflation aversion of the private sector.
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Volume (Year): 13 (2011)
Issue (Month): 04 ()
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