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Commitment and coordination in a dynamic game model of international economic policy-making

Reinhard Neck and Engelbert Dockner

Open Economies Review, 1995, vol. 6, issue 1, 5-28

Abstract: In this paper, we consider a dynamic game model of two identical countries. Policy-makers of both countries have quadratic intertemporal objective functions and want to stabilize domestic output, domestic inflation, and the real rate of exchange. We present different analytical and numerical solutions for this policy game. Noncooperative open-loop equilibria are interpreted as requiring unilateral commitment and policy-makers' credibility. Potential gains from cooperation are present, as the noncooperative equilibrium solutions are not Pareto-optimal. Under an information pattern that admits memory strategies, the possibility of obtaining “cooperative” results without coordination and commitment arises. Copyright Kluwer Academic Publishers 1995

Keywords: policy coordination; international macroeconomics; stabilization policies; dynamic game (search for similar items in EconPapers)
Date: 1995
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