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Policy games, policy neutrality and Tinbergen controllability under rational expectations

  • Di Bartolomeo Giovanni
  • Hughes Hallett Andrew
  • Acocella Nicola

This paper shows the relationship between static controllability (the well-known Tinbergen golden rule), and the existence and other properties of the Nash equilibrium in a dynamic setting with rational expectations for future behavior. We show how to determine the existence of equilibrium outcomes; the conditions under which no equilibrium exists; and who will get to dominate (or who will find their policies to have become ineffective) in those equilibria, without having to compute and enumerate all the possible equilibria directly.

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Paper provided by Department of Communication, University of Teramo in its series wp.comunite with number 0034.

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Date of creation: Jan 2008
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Handle: RePEc:ter:wpaper:0034
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  1. George W. Evans & Seppo Honkapohja, 2002. "Monetary Policy, Expectations and Commitment," University of Oregon Economics Department Working Papers 2002-11, University of Oregon Economics Department, revised 01 Feb 2004.
  2. Blanchard, Olivier J & Galí, Jordi, 2005. "Real Wage Rigidities and the New Keynesian Model," CEPR Discussion Papers 5375, C.E.P.R. Discussion Papers.
  3. George W. Evans & Seppo Honkapohja, 2003. "Expectations and the Stability Problem for Optimal Monetary Policies," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 807-824.
  4. Glenn D. Rudebusch & John C. Williams, 2006. "Revealing the Secrets of the Temple: The Value of Publishing Central Bank Interest Rate Projections," NBER Working Papers 12638, National Bureau of Economic Research, Inc.
  5. Gylfason, Thorvaldur & Lindbeck, Assar, 1994. "The Interaction of Monetary Policy and Wages," Public Choice, Springer, vol. 79(1-2), pages 33-46, April.
  6. Pierpaolo Benigno & Michael Woodford, 2003. "Optimal Monetary and Fiscal Policy: A Linear Quadratic Approach," NBER Working Papers 9905, National Bureau of Economic Research, Inc.
  7. Pappa, Evi, 2004. "Do the ECB and the fed really need to cooperate? Optimal monetary policy in a two-country world," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 753-779, May.
  8. Athey, S., 1997. "Sigle Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Working papers 97-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  10. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-30, October.
  11. Stehn, Sven Jari & Vines, David, 2008. "Strategic Interactions between an Independent Central Bank and a Myopic Government with Government Debt," CEPR Discussion Papers 6913, C.E.P.R. Discussion Papers.
  12. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  13. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  14. Brock,W.A. & Durlauf,S.N., 2004. "Local robustness analysis : theory and application," Working papers 22, Wisconsin Madison - Social Systems.
  15. Söderström, Ulf, 1999. "Monetary policy with uncertain parameters," Working Paper Series 83, Sveriges Riksbank (Central Bank of Sweden).
  16. Blanchard, Olivier & Galí, Jordi, 2006. "A New Keynesian model with unemployment," CFS Working Paper Series 2007/08, Center for Financial Studies (CFS).
  17. Holly,Sean & Hughes Hallet,Andrew, 2010. "Optimal Control, Expectations and Uncertainty," Cambridge Books, Cambridge University Press, number 9780521126335, June.
  18. Leitemo, Kai & Söderström, Ulf, 2004. "Robust monetary policy in the New-Keynesian framework," Research Discussion Papers 31/2004, Bank of Finland.
  19. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  20. Acocella, Nicola & Di Bartolomeo, Giovanni & Hughes Hallett, Andrew, 2008. "When Can Central Banks Anchor Expectations? Policy communication and controllability," CEPR Discussion Papers 7078, C.E.P.R. Discussion Papers.
  21. N. Acocella & G. Bartolomeo & Andrew Hallett, 2006. "Controllability in Policy Games: Policy Neutrality and the Theory of Economic Policy Revisited," Computational Economics, Society for Computational Economics, vol. 28(2), pages 91-112, September.
  22. Gnocchi, Stefano, 2006. "Optimal simple monetary policy rules and non-atomistic wage setters in a New-Keynesian framework," Working Paper Series 0690, European Central Bank.
  23. Acocella, Nicola & Di Bartolomeo, Giovanni, 2007. "Towards a new theory of economic policy: Continuity and innovation," MPRA Paper 4419, University Library of Munich, Germany.
  24. Kai Leitemo & Ulf Söderström, 2005. "Robust monetary policy in the New-Keynesian framework," Macroeconomics 0508032, EconWPA.
  25. Acocella, N. & Di Bartolomeo, G., 2006. "Tinbergen and Theil meet Nash: Controllability in policy games," Economics Letters, Elsevier, vol. 90(2), pages 213-218, February.
  26. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 1-26.
  27. Hughes Hallett, Andrew J, 1989. "Econometrics and the Theory of Economic Policy: The Tinbergen-Theil Contributions 40 Years On," Oxford Economic Papers, Oxford University Press, vol. 41(1), pages 189-214, January.
  28. Acocella, Nicola & Di Bartolomeo, Giovanni & Hallett, Andrew Hughes, 2007. "Dynamic Controllability With Overlapping Targets: Or Why Target Independence May Not Be Good For You," Macroeconomic Dynamics, Cambridge University Press, vol. 11(02), pages 202-213, April.
  29. Fisher, P. G. & Hallett, A. J. Hughes, 1988. "Efficient solution techniques for linear and non-linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 12(4), pages 635-657, November.
  30. Leitemo, Kai & Söderström , Ulf, 2004. "Robust monetary policy in the New-Keynesian framework," Research Discussion Papers 31/2004, .
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