Policy games, policy neutrality and Tinbergen controllability under rational expectations

This paper shows the relationship between static controllability (well-known as Tinbergen's golden rule) and the existence and other properties of the Nash equilibrium in a dynamic setting augmented with rational expectations (RE) for future behavior. We derive new theorems which state sufficient conditions for the neutrality of economic policy, and necessary conditions for the existence of equilibrium in strategic games. We show these conditions are not affected by the assumption of RE. We are also able to show how to determine who will dominate in these equilibria, and who will find their policies to be ineffective, without having to solve out for all the possible outcomes explicitly. © 2009 Elsevier Inc. All rights reserved.