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A Nash Threat Game of Passing Through Exchange Rate Mechanism II

Author

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  • Christian Fahrholz

    (School of Business and Economics, Friedrich-Schiller University Jena, Germany.)

Abstract

Following entrance into the European Union, Central Eastern European Countries (CEECs) are expected to join the European Monetary Union (EMU). These countries may incur considerable costs over the course of their passing through the required Exchange Rate Mechanism II (ERM-II). However, with enough bargaining leverage CEECs may be able to pass some of these costs on to current EMU-members. In turn, a CEEC's leverage depends on their ability to wield successful brinkmanship via an exchange-rate policy characterized by a 'threaten-thy-neighbor' strategy. A two-stage Nash-threat game captures the essentials of the CEECs' phase of ERM-II pass through.

Suggested Citation

  • Christian Fahrholz, 2007. "A Nash Threat Game of Passing Through Exchange Rate Mechanism II," Jena Economics Research Papers 2007-050, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2007-050
    as

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    File URL: https://oweb.b67.uni-jena.de/Papers/jerp2007/wp_2007_050.pdf
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    References listed on IDEAS

    as
    1. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
    2. Barry Nalebuff, 1986. "Brinkmanship and Nuclear Deterrence: The Neutrality of Escalation," Conflict Management and Peace Science, Peace Science Society (International), vol. 9(2), pages 19-30, February.
    3. Richard E. Baldwin & Joseph F. Francois & Richard Portes, 1997. "The costs and benefits of eastern enlargement: the impact on the EU and central Europe," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 12(24), pages 125-176.
    4. James Fearon, 2002. "Selection Effects and Deterrence," International Interactions, Taylor & Francis Journals, vol. 28(1), pages 5-29, January.
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    More about this item

    Keywords

    Threat game; Nash-bargaining solution; exchange-rate policy; EU-enlargement; EMU;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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