Interactive behaviour between currency speculators, monetary and fiscal actors to minimise social loss: A game theoretic analysis

Bita Shahbazi, Vahid Nikpey Pesyan and Zahra Salimi

Economic Annals, 2025, vol. 70, issue 245, 133 - 169

Abstract: In this study, using game theory and the cooperative Stackelberg game model, the extent of social loss resulting from various interactive behaviours among monetary policymakers, fiscal policymakers, and currency speculators was assessed using economic parameters from Iran over ten years (2013-2022). Three strategies for each player (government, central bank, and currency market participants) were defined by their objectives, and through optimisation, the reaction function for each player was determined. This approach helped to identify the optimal interactive strategy among these players to minimise social loss. The findings of this research indicate that in a cooperative game between the government and the central bank, more favourable outcomes are achieved when the government assumes the role of the leader, as opposed to when the central bank leads. Furthermore, prioritising the exchange rate gap over other economic variables improves outcomes when the central bank acts as the leader. Specifically, these results suggest that for fiscal policymakers, the importance of budget balance outweighs the significance of the interest rate and exchange rate gaps. Under such circumstances, the social loss during the examined period is lower than that in other scenarios, signifying the optimality of this approach in terms of minimising social loss.

Keywords: social loss; currency speculators; monetary policy; fiscal policy; cooperative game (search for similar items in EconPapers)
JEL-codes: C71 C79 E52 E62 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.ekof.bg.ac.rs/wp-content/uploads/2015/12/245-05.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:beo:journl:v:70:y:2025:i:245:p:133-169

Ordering information: This journal article can be ordered from
http://ea.ekof.bg.ac.rs/

Access Statistics for this article

Economic Annals is currently edited by Will Bartlett

More articles in Economic Annals from Faculty of Economics and Business, University of Belgrade Contact information at EDIRC.
Bibliographic data for series maintained by Goran Petrić ().