Dynamic games of fiscal and monetary policiesfor Austria

Reinhard Neck ()

Annals of Operations Research, 1999, vol. 88, issue 0, 233-249

Abstract: This paper considers a dynamic game between fiscal policy (the government) and monetarypolicy (the central bank). Both policy‐makers are assumed to optimize quadratic intertemporalobjective functions; they attach different weights to the targets employment andprice stability. An econometric model of the Austrian economy is the dynamic system uponwhich fiscal and monetary policies act. Numerical time paths of control and endogenousvariables are calculated for non‐cooperative (open‐loop and feedback Nash and Stackelbergequilibria) and cooperative solutions. It is shown that the outcomes of these solutions entailmore countercyclical policies than a projection of the model. There are only small differencesbetween the results of the solution concepts considered. The position of the government isstronger than that of the central bank as regards their influence on macroeconomic targetvariables. Copyright Kluwer Academic Publishers 1999

Date: 1999
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DOI: 10.1023/A:1018934530788

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