The (in)finite horizon open‐loop Nash LQ game:An application to EMU

Jacob Engwerda, B. Aarle and J.E.J. Plasmans

Annals of Operations Research, 1999, vol. 88, issue 0, 273 pages

Abstract: In this paper, we study macroeconomic stabilization in the Economic and Monetary Union(EMU) using a dynamic games approach. In modeling this problem, it turns out that theplayers include the time derivative of the state variable of the game in their performancecriterion. As far as the authors know, this kind of problem has not before been dealt withrigorously in dynamic games theoretic literature. Therefore, we first consider a generalizationof the linear‐quadratic differential game, in which we allow for cross terms in theperformance criteria. Following the analysis of Engwerda [10,12], we present formulas tocalculate open‐loop Nash equilibria for both the finite‐planning horizon and the infinite‐planninghorizon. Particular attention is paid to computational aspects. In the second part ofthis paper, we use the obtained theoretical results to study macroeconomic stabilization inthe Economic and Monetary Union (EMU). Copyright Kluwer Academic Publishers 1999

Date: 1999
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Working Paper: The (in)finite horizon open-loop Nash LQ Game: An application to EMU (1997)
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DOI: 10.1023/A:1018986514858

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