Strategic Interaction Between Government and Central Bank in Framework of Cooperative and Non-Cooperative Games

mahmoudinia, davoud; engwerda, jacob; dallali esfahani, rahim; bakhshi dastjerdi, rasul; fakhar, majid

doi:10.18869/acadpub.jemr.6.24.83

Volume 7, Issue 24 (6-2016) jemr 2016, 7(24): 83-121 | Back to browse issues page

‎ 10.18869/acadpub.jemr.6.24.83

‎ 20.1001.1.22286454.1395.6.24.4.3

Mendeley

Zotero

RefWorks

mahmoudinia D, engwerda J, dallali esfahani R, bakhshi dastjerdi R, fakhar M. Strategic Interaction Between Government and Central Bank in Framework of Cooperative and Non-Cooperative Games. jemr 2016; 7 (24) :83-121
URL: http://jemr.khu.ac.ir/article-1-1270-en.html

Strategic Interaction Between Government and Central Bank in Framework of Cooperative and Non-Cooperative Games

Davoud Mahmoudinia ^*

¹, Jacob Engwerda²

, Rahim Dallali esfahani³

, Rasul Bakhshi dastjerdi³

, Majid Fakhar³

1- Isfahan university , davoud.mahmoudinia@gmail.com
2- tilburg university
3- Isfahan university

Abstract: (7359 Views)

In this paper we analyzed the strategic interaction between government and central bank in Iranian economy. Using dynamic differential games and Nash equilibrium within cooperative and non-cooperative setting, we try to find the optimal values of debt, deficit and monetary base. The results of simulation show that in cooperative case the level of equilibrium debt is lower than the non-cooperative case and converge speed is higher in cooperative setting than non-cooperation setting. Also in cooperative case than non-cooperative case, less creation of money and less government deficit are needed for debt stabilization in long run. The results also show that in both cooperative and non-cooperative cases under uncertainty, more active policies are used to track debt to its equilibrium level. These active policies lead debt goes to smaller level.

Keywords: Differential Game, Cooperative and Non-cooperative Game, Nash Equilibrium, Monetary Policy, Fiscal Policy

Full-Text [PDF 2626 kb] (3577 Downloads)

Type of Study: توسعه ای | Subject: پولی و مالی
Received: 2015/07/6 | Accepted: 2016/06/28 | Published: 2016/09/19

References

1.  Branson, William, (2007), Macroeconomic theory and policy, translation Abbas Shakeri, Reed Publishing

2.  Debuque-Gonzales, Margarita; Gochoco-Bautista, Maria Socorro. 2013. Financial Conditions Indexes for Asian Economies. © Asian Development Bank. http://hdl.handle.net/11540/2083. License: CC BY 3.0 IGO.

3.  Duguay, P. (1994), "Emprical Evidence On The Strength Of The Monetary Transmission Mechanism In Canada: An Aggregate Approach" Journal Ofmonetary Economics, Vol.33 (1), Pp. 39-61. [DOI:10.1016/0304-3932(94)90013-2]

4.  Freedman, C. (1995), "The Role of Monetary Conditions And The Monetary Conditions Index In The Conduct Of Monetary Policy", Bank Of Canada Review, Autumn 1995..

5.  Gauthier, C., Graham, C. And Liu, Y. (2004), "Financial Conditions Indexes For Canada",WP 2004-22

6.  Gerlach, S. And Smets, F. (2000), "Mcis And Monetary Policy'', European Economic Review, No.44, Pp.1677-1700.

7.  Goodhart, C. (2001), "What Weight Should Be Given To Asset Prices In The Measurement Of Inflation?" The Economic Journal, 111, Pp 335-56 [DOI:10.1111/1468-0297.00634]

8.  Goodhart, C. And Hofmann, B. (2003), "Asset Prices, Financial Conditions, And Thetransmission Of Monetary Policy", Paper Presented At The Conference On Asset Prices, Exchange Rates And Monetary Policy, Stanford University, March 2-3, 2001.

9.  Hatzius, Jan, Hooper, Peter, . Mishkin. Frederic S, Schoenholtz, , Kermit L, Watson , Mark W. ( 2010), Financial Conditions Indexes: A Fresh Look after the Financial Crisis, NBER Working Paper No. 16150, http://www.nber.org/papers/w16150

10.  Hataisereerungsun, 1998. The Roles Of Monetary Conditions And The Monetary Conditions Index In The Conduct Of Monetary Policy: The Case Of Thailand Under The Floating Rate Regime, Bank Of Thailand Quarterly Bulletin

11.  Hossain, Akhtar and Anis Chowdhury, (1382). Monetary and financial policies in developing countries, Tehran, Press Institute of Economic Affairs

12.  Kamijani, A. (1373) Appropriate Policies To Stabilize Economic Activity, Tehran: Department of Economic Affairs, Ministry of Economic Affairs and Finance

13.  Kamijani, A. (1379) Mechanisms for Monetary Transmission Mechanism in the form of an open economy model Proceedings of the Central Bank of Iran, pages 31-82

14.  Kamijani, A. Ali Nzhadmhrbany, F. (1391), evaluating the effectiveness of monetary transmission channels on output and inflation and an analysis of their relative importance in the economy, Journal of Year 17, No. 2, 39-64

15.  Kirsten Thompson,Reneé Van Eyden,Rangan Gupta.(2013) Identifying A Financial Conditions Index For South Africa, Department Of Economics, University Of Pretoria, Pretoria 0002, South Africa

16.  Kesriyeli M., Kocaker I. I., 1999. Monetary Condition Index: A Monetary Policy Indicator For Turkey, Discussion Paper No. 9908, Central Bank Of Republic Of Turkey.

17.  Knedlik, Tobias ,2005, Luxembourg, Estimating The Monetary Conditions Index For South Africa

18.  Khataee,M and pour Seifi R. (1385). Monetary policy instruments and rules known in Iran's economy, Economic Research Journal, No. 237, page 267-73

19.  Khorsandy, M, Eslamloueyan ,K, Zvalnvr, SH (1391), monetary conditions index for the Iranian economy , Journal of Economic Research, , the twelfth year, the first issue ,Spring ,pages 31-57

20.  Jamshidi, A., (1381). Monetary policy in Iran, Volume 1, Tehran Iran Industrial Development Investment Company Publishing

21.  Lack, C.P. (2003), "A Financial Conditions Index for Switzerland", Monetary Policy in a Changing Environment, BIS Paper No. 19, Bank for International Settlement, Basel, pp. 398-413.

22.  Mayes, David, and Matti Virén. 2001. Financial Conditions Indexes. Bank of Finland Discussion Paper No. 2001–17.

23.  Mishkin, Frederic, (1998), "The Channels of Monetary Transmission: Lessons for Monetary

24. Policy ," NBER Working Paper No. 5464.

25.  Peng W., Leung F., 2005. A Monetary Conditions Index For Mainland China, Hong Kong Monetary Authority Quarterly Bulletin

26.  Rahmani, T. (1381). Macroeconomics, vol. 1 and 2, Tehran, brothers Publishing,

27.  Renani Sharifi, H., Ghobadi, S., (1391), to investigate the effect of monetary policy on GDP and inflation through housing price index, economic development of programming, first year, first issue, spring and summer 1, 48-69

28.  Renani Sharifi, H., Kamijani, Akbar and other cities, H. (1389), Study on Monetary Transmission Mechanism in Iran: A Structural Vector Auto Regressive approach, Journal of Money and the economy, Issue 2, Winter 1388

29.  R. Kannan, Siddhartha Sanyal And Binod Bihari Bhoi,( 2006), Reserve Bank Of India Occasional Papers, Monetary Conditions Index For India, Vol. 27,Pp.58-86

30.  Sadeghi, Hossein, Rostamzadeh, P and H Asgharpour (1386), separation of monetary policy from the monetary conditions index in Iran, a useful, December, Issue 13: 59-82

31.  Shirinbakhsh, Shams Ali and Khansari, Hassan, (1384). Eviews applications in econometrics, Tehran Research Institute of Economic Affairs,

32.  Svensson, L. (2000), 'Open-Economy Inflation Targeting',Journal International Economics, 50, Pp 155-183

33.  Tashkini, A., (1384). Using econometric microfit, Tehran, Tehran University Publication

34.  Vashghani, M. (1390), the monetary transmission mechanism and effectiveness of monetary policy, and economic policy issues, monthly economic magazine, Issue 12, March: 159-166