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Cheating for the common good in a Macroeconomic policy game

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  • Francisco Álvarez González

    (Université de la Méditerranée (Aix-MarseilleII))

  • Christophe Deissenberg

    (Universidad Complutense, Madrid, Spain)

Abstract

This paper presents a simple repeated-game model of interaction between an optimizing government and the private sector. Two polar cases are considered: (a) the private sector is represented by a single agent; and (b) there is a continuum of heterogenous atomistic private agents. In both cases, the government starts each repetition by making a non-binding announcement about its future actions. The players have complete and perfect information, with one exception: the private agents do not know whether or not the government will act as announced. Thus, each private agent ieither behaves with probability ði as if it trusted the announcement, or plays with probability 1 . ði as a Stackelberg leader. After observing the reaction of the private sector, the government

Suggested Citation

  • Francisco Álvarez González & Christophe Deissenberg, 2001. "Cheating for the common good in a Macroeconomic policy game," Documentos de Trabajo del ICAE 0104, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  • Handle: RePEc:ucm:doicae:0104
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    2. McCallum, Bennett T., 1997. "Crucial issues concerning central bank independence," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 99-112, June.
    3. Backus, David & Driffill, John, 1985. "Inflation and Reputation," American Economic Review, American Economic Association, vol. 75(3), pages 530-538, June.
    4. Rogoff, Kenneth, 1987. "Reputational constraints on monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 26(1), pages 141-181, January.
    5. Borgers, Tilman & Sarin, Rajiv, 1997. "Learning Through Reinforcement and Replicator Dynamics," Journal of Economic Theory, Elsevier, vol. 77(1), pages 1-14, November.
    6. Drew Fudenberg & David K. Levine, 1998. "The Theory of Learning in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061945, January.
    7. Hughes Hallett, Andrew J, 1991. "Difference Games and Policy Evaluation: A Comment," Oxford Economic Papers, Oxford University Press, vol. 43(4), pages 637-643, October.
    8. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    Cited by:

    1. Arifovic, Jasmina & Dawid, Herbert & Deissenberg, Christophe & Kostyshyna, Olena, 2010. "Learning benevolent leadership in a heterogenous agents economy," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1768-1790, September.
    2. repec:kap:jbuset:v:145:y:2017:i:4:d:10.1007_s10551-016-3118-6 is not listed on IDEAS

    More about this item

    Keywords

    Macroeconomic policy-making; Kydland-Prescott model; time inconsistency; reinforcement learning; reversed Stackelberg games; optimal cheating strategies; reputation; credibility.;

    JEL classification:

    • C69 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Other
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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