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Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis

  • Giovanni Di Bartolomeo

    (UNIVERSITÀ DEGLI STUDI DI ROMA “LA SAPIENZA”)

  • Debora Di Gioacchino

    (UNIVERSITÀ DEGLI STUDI DI ROMA “LA SAPIENZA”)

This paper studies the interaction between two autonomous policymakers, the central bank and the government, in managing public debt as the result of a two-stage game. In the first stage the institutional regime is established. This determines the equilibrium solution to be applied in the second stage, in which a differential game is played between the two policymakers. It is shown that, if the policymakers can communicate before the game is played, (multiple-equilibrium) coordination problems can be solved by using the concept of correlated equilibrium. Unlike Nash equilibrium, which only allows for individualistic and independent behaviour, a correlated equilibrium allows for

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Paper provided by EconWPA in its series Macroeconomics with number 0504024.

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Length: 30 pages
Date of creation: 16 Apr 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0504024
Note: Type of Document - pdf; pages: 30
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