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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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    References listed on IDEAS

    as
    1. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
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    4. James Fearon, 2002. "Selection Effects and Deterrence," International Interactions, Taylor & Francis Journals, vol. 28(1), pages 5-29, January.
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    Keywords

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    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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