Citation

Discussion Paper Details

Please find the details for DP27 in an easy to copy and paste format below:

Full Details

Title: Dynamic Games and the Time Inconsistency of Optimal Policy in Open Economies

Author(s): Marcus Miller and Mark Salmon

Publication Date: August 1984

Keyword(s): Continuous-Time Economic System, Fiscal Stabilization, Full-Information Differential Games and Maximum Principle

Programme Area(s): International Macroeconomics

Abstract: In this paper the Maximum Principle is used to derive optimal policies for linear-quadratic, continuous-time economic systems where there may be more than one policy-maker and where the private sector may have rational expectations. The analogy between solving full-information differential games and designing policy in the presence of forward-looking expectations is explored first, before these two problems are considered in combination. Both the "term inconsistent" optimal policy which arises from strategic asymmetries, and various time consistent alternatives are discussed; and the approach is illustrated with an application to fiscal stabilisation policy in a Common Market.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=27

Bibliographic Reference

Miller, M and Salmon, M. 1984. 'Dynamic Games and the Time Inconsistency of Optimal Policy in Open Economies'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=27