Consistent Conjectural Equilibria and Economic Policies Coordination

Henri Sterdyniak () and Pierre Villa
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Pierre Villa: Institut National de la Statistique et des Etudes Economiques

Chapter 16 in Open-Economy Macroeconomics, 1993, pp 289-309 from Palgrave Macmillan

Abstract: Abstract In the recent literature on optimal policy coordination, the essential part is played by the comparison between Nash equilibrium, obtained when each country uses its policy instruments in order to minimise its loss function by taking as fixed its partners’ policy, and the Pareto equilibria, obtained when the countries cooperate efficiently. But the notion of Nash equilibrium is unsatisfactory for two related reasons. In a Nash equilibrium, economic authorities are assumed to consider that their partners do not react to their actions even though in reality they do. The Nash equilibrium depends upon the way each country imagines its partners’ policies, because each country is supposed to reason as if these policies were unchanging. But what do we call an unchanging economic policy? Is it the stability of instruments or the stability of the intermediate targets of economic policy?

Keywords: Exchange Rate; Interest Rate; Nash Equilibrium; Monetary Policy; Loss Function (search for similar items in EconPapers)
Date: 1993
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Related works:
Working Paper: Consistent Conjectural Equilibria and Economic Policies Coordination (1991)
Working Paper: Consistent Conjectural Equilibria and Economic Policies Coordination (1991)
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DOI: 10.1007/978-1-349-12884-6_16

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