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Achieving the Nash and Stackelberg Equilibrium in a Strategic Game between the Government and the Central Bank, Assuming the Uncertainty of the Financial Authority in Obtaining the Budget | ||
| پژوهشنامه اقتصاد کلان Macroeconomics Research Letter | ||
| Article 1, Volume 18, Issue 40, December 2023, Pages 7-39 PDF (1.18 M) | ||
| Document Type: Scientific paper | ||
| DOI: 10.22080/iejm.2024.26710.2044 | ||
| Authors | ||
| Davoud Mahmoudinia* 1; Davoud Foroutannia2 | ||
| 1Department of Economics, Vali-e-Asr University of Rafsanjan, Iran | ||
| 2Department of Mathematics, Vali-e-Asr University of Rafsanjan, Iran | ||
| Receive Date: 05 February 2024, Revise Date: 18 February 2024, Accept Date: 19 February 2024 | ||
| Abstract | ||
| The purpose of this study is to investigate the interaction of behavior between two important players in the economy, namely the government and the central bank, despite the uncertainty of the government in achieving a certain level of budget. The goal of the government is to achieve the highest growth of the economy with the help of budgetary tools, and the goal of the central bank is to stabilize prices using the policy tool of interest rates. The existence of independence between two authorities was analyzed in the framework of two non-cooperative games and the leader-follower game (Stackelberg) based on the existing parameters in Iran's economy. The results of this research show that both the government's response to the increase in the political interest rate and the central bank's response to the increase in the government's budget deficit are expansionary. On the other hand, in the Nash equilibrium, an increase in the uncertainty variable of the government causes an increase in the loss function of the government and the central bank. Moreover, the change in the weight attributed to inflation by the financial authority in the constraint function causes the government's policy instrument to decrease in the Nash equilibrium. Therefore, it is recommended for both policies to always give significant weight to the inflation rate in their loss function in presenting their policy package and try to present a game in the case of independence of two politicians, in which the government plays the role of the leader and the central bank should play the role of follower. | ||
| Keywords | ||
| Nash equilibrium; Stackelberg equilibrium; monetary policies; financial policies; government budget; uncertainty | ||
| References | ||
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