Robust predictions in dynamic policy games

Juan Passadore () and Juan Pablo Xandri Antuna ()
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Juan Passadore: IMF, Western Hemisphere Department
Juan Pablo Xandri Antuna: Department of Economics, Universidad de Los Andes, Chile

Theoretical Economics, 2024, vol. 19, issue 4

Abstract: Dynamic policy games feature a wide range of equilibria. This paper provides a methodology for obtaining robust predictions. We focus on a model of sovereign debt, although our methodology applies to other settings, such as models of monetary policy or capital taxation. Our main result is a characterization of distributions over outcomes that are consistent with a subgame perfect equilibrium conditional on the observed history. We illustrate our main result by computing, conditional on an observed history, bounds across all equilibria on: the maximum probability of a crisis, means, variances, and covariances over debt prices.

Keywords: Multiple equilibria; robustness; moment inequalities; correlated equilibrium; policy games (search for similar items in EconPapers)
JEL-codes: C73 (search for similar items in EconPapers)
Date: 2024-11-14
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Citations: View citations in EconPapers (1)

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