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Extraction of Optimal Fiscal and Monetary Policy Rules in Framework of Game Theory: Application of Dynamic Stochastic General Equilibrium Model

Author

Listed:
  • Mahmoudinia , Davoud

    (Assistant Professor of Economics, Vali-E-Asr University of Rafsanjan)

  • Bakhshi Dastjerdi , Rasul

    (Associate Professor of Economics, University of Isfahan)

  • Jafari, Somayeh

    (Ph.D. Student in Economics, University of Allameh Tabatabai)

Abstract

In the recent decades, implementation of fiscal and monetary policies between the government and the central bank has been one of the interesting topics among economists. Many researchers believe that implementation of fiscal and monetary policies based on the rule and commitment can smooth the access path to a sustainable level of economic variables. Also, different methods have been studied by researcher for this subject. Game theory and Dynamic Stochastic General Equilibrium (DSGE) models are two instruments and methods for considering this issue. Hence, in this current study in framework of Game theory and DSGE Models, optimal rule for monetary and fiscal policy-maker in Iran economy are obtained. The result of this study shows that the value of social welfare is more, when government and central bank behave in framework of cooperative than non-cooperative. On the other hand, in cooperative than non-cooperative case, a larger share of oil revenues as foreign reserves is kept at the central bank.

Suggested Citation

  • Mahmoudinia , Davoud & Bakhshi Dastjerdi , Rasul & Jafari, Somayeh, 2018. "Extraction of Optimal Fiscal and Monetary Policy Rules in Framework of Game Theory: Application of Dynamic Stochastic General Equilibrium Model," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 4(4), pages 143-174, March.
    • Handle: RePEc:ris:qjatoe:0093
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    More about this item

    Keywords

    Game theory; Cooperative and non-cooperative games; Optimal policy rule; Dynamic stochastic general equilibrium model; Iran economy;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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