A macroeconomic policy game for a monetary union with adaptive expectations

Neck, Reinhard and Behrens, Doris 2009. A macroeconomic policy game for a monetary union with adaptive expectations. Atlantic Economic Journal 37 (4) , p. 335. 10.1007/s11293-009-9186-6

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Abstract

We consider a dynamic game model of a two-country monetary union. Governments (fiscal policies) pursue national goals while the common central bank’s monetary policy aims at union-wide objectives. For a symmetric demand shock, we derive numerical solutions of the dynamic game between the governments and the central bank. We consider conflicting (non-cooperative Nash equilibrium) and coordinated policy-making (cooperative Pareto solutions). We show that there is a trade-off between the deviations of instruments and targets from desired paths; the volatility of output and inflation increases when private agents react more strongly to changes in actual inflation.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Mathematics
Subjects:	Q Science > QA Mathematics
Publisher:	Springer
ISSN:	0197-4254
Last Modified:	10 Oct 2017 17:13
URI:	https://orca.cardiff.ac.uk/id/eprint/93747

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