State Manipulation and Asymptotic Inefficiency in a Dynamic Model of Monetary Policy
Publikation: Working paper › Forskning
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State Manipulation and Asymptotic Inefficiency in a Dynamic Model of Monetary Policy. / Jensen, Henrik; Lockwood, Ben.
Universities of Copenhagen and Warwick, 2000.Publikation: Working paper › Forskning
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TY - UNPB
T1 - State Manipulation and Asymptotic Inefficiency in a Dynamic Model of Monetary Policy
AU - Jensen, Henrik
AU - Lockwood, Ben
N1 - JEL Classification: C73; E52
PY - 2000
Y1 - 2000
N2 - A simple folk theorem of repeated games states that Pareto-efficient outcomes can be achieved in a perfect equilibrium where deviations are punished by a reversion to Nash equilibrium of the associated stage game (Nash threats equilibrium), provided that players are sufficiently patient. In a dynamic version of a well-known monetary policy game we show that such asymptotic efficiency may not be possible, as the presence of a state variable introduces the possibility of state manipulation. Moreover, the lowest inflation rate in Nash threats equilibrium may be increasing as players become more patient
AB - A simple folk theorem of repeated games states that Pareto-efficient outcomes can be achieved in a perfect equilibrium where deviations are punished by a reversion to Nash equilibrium of the associated stage game (Nash threats equilibrium), provided that players are sufficiently patient. In a dynamic version of a well-known monetary policy game we show that such asymptotic efficiency may not be possible, as the presence of a state variable introduces the possibility of state manipulation. Moreover, the lowest inflation rate in Nash threats equilibrium may be increasing as players become more patient
M3 - Working paper
BT - State Manipulation and Asymptotic Inefficiency in a Dynamic Model of Monetary Policy
CY - Universities of Copenhagen and Warwick
ER -
ID: 50678430