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Fiscal and monetary policy co‐ordination: A differential game approach
Author(s) -
Petit Maria Luisa
Publication year - 1989
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.3950040205
Subject(s) - stackelberg competition , economics , argument (complex analysis) , differential (mechanical device) , ordination , position (finance) , nash equilibrium , bargaining problem , treasury , central bank , microeconomics , monetary policy , differential game , mathematical economics , macroeconomics , finance , computer science , mathematics , biochemistry , chemistry , archaeology , machine learning , engineering , history , aerospace engineering , mathematical optimization
In this paper the interaction between the Treasury and the central bank is examined in the case of both cooperative and non‐cooperative behaviour. Differential games are used in the framework of a continuous‐time econometric model of the Italian economy. The Nash and the Stackelberg non‐cooperative equilibrium solutions are computed, and the case for cooperation is analysed by considering the Nash and the Kalai‐Smorodinsky bargaining models. It is shown that, in the Italian case, the government has a stronger bargaining position than the central bank. A comparison is then made between the different solutions to show that the drawbacks that emerge from non‐cooperation are not simply those depending on the players' payoffs. Other features are in fact considered which constitute a further argument for policy co‐ordination.