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Robust predictions in dynamic policy games

Author

Listed:
  • Passadore, Juan

    (IMF, Western Hemisphere Department)

  • Xandri Antuna, Juan Pablo

    (Department of Economics, Universidad de Los Andes, Chile)

Abstract

Dynamic policy games feature a wide range of equilibria. This paper provides a methodology for obtaining robust predictions. We focus on a model of sovereign debt, although our methodology applies to other settings, such as models of monetary policy or capital taxation. Our main result is a characterization of distributions over outcomes that are consistent with a subgame perfect equilibrium conditional on the observed history. We illustrate our main result by computing, conditional on an observed history, bounds across all equilibria on: the maximum probability of a crisis, means, variances, and covariances over debt prices.

Suggested Citation

  • Passadore, Juan & Xandri Antuna, Juan Pablo, 2024. "Robust predictions in dynamic policy games," Theoretical Economics, Econometric Society, vol. 19(4), November.
    • Handle: RePEc:the:publsh:4489
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    References listed on IDEAS

    as
    1. Waki, Yuichiro & Dennis, Richard & Fujiwara, Ippei, 2018. "The optimal degree of monetary-discretion in a New Keynesian model with private information," Theoretical Economics, Econometric Society, vol. 13(3), September.
    2. Forges, Francoise M, 1986. "An Approach to Communication Equilibria," Econometrica, Econometric Society, vol. 54(6), pages 1375-1385, November.
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    Cited by:

    1. Bloise, Gaetano & Vailakis, Yiannis, 2024. "Sovereign debt crises and low interest rates," Journal of International Economics, Elsevier, vol. 150(C).

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    More about this item

    Keywords

    Multiple equilibria; robustness; moment inequalities; correlated equilibrium; policy games;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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