Policy Interactions in a Monetary Union: An Application of the OPTGAME Algorithm

Dmitri Blueschke and Reinhard Neck ()

A chapter in Dynamic Games in Economics, 2014, pp 51-68 from Springer

Abstract: Abstract In this chapter we present an application of the dynamic tracking games framework to a monetary union. We use a small stylized nonlinear two-country macroeconomic model (MUMOD1) of a monetary union to analyse the interactions between fiscal (governments) and monetary (common central bank) policy makers, assuming different objective functions of these decision makers. Using the OPTGAME algorithm we calculate equilibrium solutions for four game strategies: one cooperative (Pareto optimal) and three non-cooperative games: the Nash game for the open-loop information pattern, the Nash game for the feedback information pattern, and the Stackelberg game for the feedback information pattern. Applying the OPTGAME algorithm to the MUMOD1 model we show how the policy makers react to demand and supply shocks according to different solution concepts. Some comments are given on possible applications to the recent sovereign debt crisis in Europe.

Keywords: Monetary Policy; Central Bank; Fiscal Policy; Inflation Rate; Public Debt (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:dymchp:978-3-642-54248-0_3

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DOI: 10.1007/978-3-642-54248-0_3

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