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Consistent Conjectural Equilibria and Economic Policies Coordination

In: Open-Economy Macroeconomics

Author

Listed:
  • Henri Sterdyniak

    (Observatoire Français des Conjonctures Economiques)

  • Pierre Villa

    (Institut National de la Statistique et des Etudes Economiques)

Abstract

In the recent literature on optimal policy coordination, the essential part is played by the comparison between Nash equilibrium, obtained when each country uses its policy instruments in order to minimise its loss function by taking as fixed its partners’ policy, and the Pareto equilibria, obtained when the countries cooperate efficiently. But the notion of Nash equilibrium is unsatisfactory for two related reasons. In a Nash equilibrium, economic authorities are assumed to consider that their partners do not react to their actions even though in reality they do. The Nash equilibrium depends upon the way each country imagines its partners’ policies, because each country is supposed to reason as if these policies were unchanging. But what do we call an unchanging economic policy? Is it the stability of instruments or the stability of the intermediate targets of economic policy?

Suggested Citation

  • Henri Sterdyniak & Pierre Villa, 1993. "Consistent Conjectural Equilibria and Economic Policies Coordination," International Economic Association Series, in: Helmut Frisch & Andreas Wörgötter (ed.), Open-Economy Macroeconomics, chapter 16, pages 289-309, Palgrave Macmillan.
  • Handle: RePEc:pal:intecp:978-1-349-12884-6_16
    DOI: 10.1007/978-1-349-12884-6_16
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