Monetary policy in interdependent economies: An application of trigger mechanisms in noncooperative repeated games.
Item
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Title
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Monetary policy in interdependent economies: An application of trigger mechanisms in noncooperative repeated games.
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Identifier
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AAI9510647
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identifier
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9510647
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Creator
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Chen, Run-Rong.
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Contributor
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Adviser: Salih Neftci
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Date
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1994
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, General | Economics, Theory
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Abstract
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Game theory has been applied in Macroeconomics and Monetary Economics since the last decade.;In an open economy, cooperative games usually yield efficient outcomes, and noncooperative games usually yield inefficient outcomes because the externalities between countries are not internalized when the policymaker in each country changes the monetary policies. In fact, the non-cooperative policymakers can achieve the same efficient outcomes by using the trigger mechanism in the repeated games. Research has shown that the trigger mechanism did not work at all in games with finite horizon. However recent developments show that it can be employed in finitely repeated games if there are multiple Nash equilibria in one-shot game.;Mattew Canzoneri and Dale Henderson achieved one Nash equilibrium in their book, but they did not obtain two Nash equilibria by different monetary policies in the one-shot games.;Anticipated changes in money supply have real effects on the capital and the output, and the nonneutrality of the money supply is the famous Tobin effect.;In my dissertation, under the assumptions that prices are fully flexible and expectations are formed rationally, I obtained two Nash equilibria by the anticipated permanent increase in money supply and the anticipated increase in the rate of growth of money supply, and one is better than the other. So, policymaker's good behavior in early periods can be rewarded with good Nash solution in the later periods and bad behavior will be punished by ending up with the bad Nash solution in the later periods. With these strategies, a Pareto optimum which all policymakers prefer to the Nash equilibrium in one-shot games can be attained as an equilibrium of the noncooperative repeated game.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
