Abstract
Game theory has been used as a tool to analyze monetary policy since the beginning of the 1980s, especially to study the “rules versus discretion” question. After the founding article by Kydland and Prescott (1977), Barro and Gordon (1983) introduced game theory in their model. This approach was improved by Canzoneri (1985), Backus and Driffill (1985) and Rogoff (1985). The debate “rules versus discretion” turned into the debate “credibility versus flexibility” (Minford 1993). New concepts appeared, such as the conservative central banker and performance contracts. These models, built in a closed economy, led to the famous time inconsistency result with its inflationary bias. The question is whether this result also holds in an open economy.
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Fourçans, A., Warin, T. (2001). A Game Theoretical Approach to Monetary Policy. In: Moser, T., Schips, B. (eds) EMU, Financial Markets and the World Economy. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-5131-4_5
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DOI: https://doi.org/10.1007/978-1-4757-5131-4_5
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