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Time-Consistent Implementation in Macroeconomic Games

Author

Listed:
  • Jean Barthélemy
  • Eric Mengus

Abstract

The commitment ability of governments is neither infinite nor zero but intermediate. In this paper, we determine the commitment ability that a government needs to implement a unique equilibrium outcome and rule out undesired self-fulfilling expectations. We first show that, in a large class of static macroeconomic games, the government can implement any time-consistent equilibrium with any low level of commitment ability. We then show that this result may not be robust to imperfect information, fixed costs or repeated interactions. We finally derive implications for models of bailouts, inflation bias, and capital taxation.

Suggested Citation

  • Jean Barthélemy & Eric Mengus, 2022. "Time-Consistent Implementation in Macroeconomic Games," Working papers 902, Banque de France.
    • Handle: RePEc:bfr:banfra:902
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    Cited by:

    1. Gaballo, Gaetano & Mengus, Eric, 2023. "Myopic fiscal objectives and long-Run monetary efficiency," Journal of Monetary Economics, Elsevier, vol. 136(C), pages 1-17.
    2. Barthelemy, Jean & Mengus, Eric, 2024. "Time-consistent implementation in macroeconomic games," Theoretical Economics, Econometric Society, vol. 19(3), July.

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    Keywords

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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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