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Dynamic Games in Macroeconomics

  • Łukasz Balbus
  • Kevin Reffett
  • Łukasz Woźny
Reference work entry

Abstract

In this chapter, we survey how the methods of dynamic and stochastic games have been applied in macroeconomic research. In our discussion of methods for constructing dynamic equilibria in such models, we focus on strategic dynamic programming, which has found extensive application for solving macroeconomic models. We first start by presenting some prototypes of dynamic and stochastic games that have arisen in macroeconomics and their main challenges related to both their theoretical and numerical analysis. Then, we discuss the strategic dynamic programming method with states, which is useful for proving existence of sequential or subgame perfect equilibrium of a dynamic game. We then discuss how these methods have been applied to some canonical examples in macroeconomics, varying from sequential equilibria of dynamic nonoptimal economies to time-consistent policies or policy games. We conclude with a brief discussion and survey of alternative methods that are useful for some macroeconomic problems.

Keywords

Strategic dynamic programming Sequential equilibria Markov equilibria Perfect public equilibria Non-optimal economies Time-consistency problems Policy games Numerical methods Approximating sets Computing correspondences 

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Authors and Affiliations

  1. 1.Faculty of Mathematics, Computer Sciences and EconometricsUniversity of Zielona GóraZielona GóraPoland
  2. 2.Department of EconomicsArizona State UniversityTempeUSA
  3. 3.Department of Quantitative EconomicsWarsaw School of EconomicsWarsawPoland

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