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Policy rule Nash equilibria

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  • Gerhard Sorger

Abstract

We study how different types of instrument rules affect the outcome of a monetary policy game between the central bank and the private sector. Policy rules can be independent of output and a shock, functions of the shock, or functions of output. We rank the Nash equilibria generated by different types of policy rules according to the central bank's ex ante expected loss. If both players can condition on output, then the following is true: no equilibrium exists if the central bank cares much about output stability and little about price stability, and infinitely many equilibria exist otherwise.

Suggested Citation

  • Gerhard Sorger, 2003. "Policy rule Nash equilibria," Canadian Journal of Economics, Canadian Economics Association, vol. 36(4), pages 973-992, November.
    • Handle: RePEc:cje:issued:v:36:y:2003:i:4:p:973-992
    DOI: 10.1111/1540-5982.t01-3-00009
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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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