Dynamic Games in Macroeconomics

Łukasz Balbus (), Kevin Reffett () and Łukasz Woźny
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Łukasz Balbus: University of Zielona Góra, Faculty of Mathematics, Computer Sciences and Econometrics
Kevin Reffett: Arizona State University, Department of Economics

Chapter 17 in Handbook of Dynamic Game Theory, 2018, pp 729-778 from Springer

Abstract: Abstract In this chapter, we survey how the methods of dynamic and stochastic games have been applied in macroeconomic research. In our discussion of methods for constructing dynamic equilibria in such models, we focus on strategic dynamic programming, which has found extensive application for solving macroeconomic models. We first start by presenting some prototypes of dynamic and stochastic games that have arisen in macroeconomics and their main challenges related to both their theoretical and numerical analysis. Then, we discuss the strategic dynamic programming method with states, which is useful for proving existence of sequential or subgame perfect equilibrium of a dynamic game. We then discuss how these methods have been applied to some canonical examples in macroeconomics, varying from sequential equilibria of dynamic nonoptimal economies to time-consistent policies or policy games. We conclude with a brief discussion and survey of alternative methods that are useful for some macroeconomic problems.

Keywords: Strategic dynamic programming; Sequential equilibria; Markov equilibria; Perfect public equilibria; Non-optimal economies; Time-consistency problems; Policy games; Numerical methods; Approximating sets; Computing correspondencecorrespondence s (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-319-44374-4_18

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DOI: 10.1007/978-3-319-44374-4_18

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