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 the players’ behaviour to be coordinated and correlated.

Monetary and Fiscal Policy Coordination: Strategies and Institutions / DI BARTOLOMEO, Giovanni; DI GIOACCHINO, Debora. - ELETTRONICO. - 74(2004).

Monetary and Fiscal Policy Coordination: Strategies and Institutions

DI BARTOLOMEO, Giovanni;DI GIOACCHINO, Debora
2004

Abstract

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 the players’ behaviour to be coordinated and correlated.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11573/216617
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