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CREDIBILITY AND INTERTEMPORAL CONSISTENCY

A Note on Strategic Macroeconomic Policy Models

Published online by Cambridge University Press:  02 March 2005

KIMINORI MATSUYAMA
Affiliation:
Northwestern University
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Abstract

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The credibility criterion commonly used in the strategicmacroeconomic policy literature, subgame perfection or its variants,ignores a critical problem concerning intertemporal consistency ofpolicy announcements.To capture this additional credibilityconstraint,this note applies two distinct notions ofRenegotiation-Proof, originally proposed in the context of two-personrepeated games.Macroeconomic policy games, where thebenevolentgovernment interacts with atomistic private agents, offers a newtestingground for these criteria to be evaluated.This notediscusses the relative strengths andweaknesses of thesecriteria.

Information

Type
Research Article
Copyright
© 1997 Cambridge University Press