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Dynamic Games in Macroeconomics

In: Handbook of Dynamic Game Theory

Author

Listed:
  • Łukasz Balbus

    (University of Zielona Góra, Faculty of Mathematics, Computer Sciences and Econometrics)

  • Kevin Reffett

    (Arizona State University, Department of Economics)

  • Łukasz Woźny

    (Warsaw School of Economics, Department of Quantitative Economics)

Abstract

In this chapter, we survey how the methods of dynamic and stochastic games have been applied in macroeconomic research. In our discussion of methods for constructing dynamic equilibria in such models, we focus on strategic dynamic programming, which has found extensive application for solving macroeconomic models. We first start by presenting some prototypes of dynamic and stochastic games that have arisen in macroeconomics and their main challenges related to both their theoretical and numerical analysis. Then, we discuss the strategic dynamic programming method with states, which is useful for proving existence of sequential or subgame perfect equilibrium of a dynamic game. We then discuss how these methods have been applied to some canonical examples in macroeconomics, varying from sequential equilibria of dynamic nonoptimal economies to time-consistent policies or policy games. We conclude with a brief discussion and survey of alternative methods that are useful for some macroeconomic problems.

Suggested Citation

  • Łukasz Balbus & Kevin Reffett & Łukasz Woźny, 2018. "Dynamic Games in Macroeconomics," Springer Books, in: Tamer Başar & Georges Zaccour (ed.), Handbook of Dynamic Game Theory, chapter 17, pages 729-778, Springer.
    • Handle: RePEc:spr:sprchp:978-3-319-44374-4_18
    DOI: 10.1007/978-3-319-44374-4_18
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