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Dynamic Games and the Time Inconsistency of Optimal Policy in Open Economies

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  • Miller, Marcus
  • Salmon, Mark

Abstract

In this paper the Maximum Principle is used to derive optimal policies for linear-quadratic, continuous-time economic systems where there may be more than one policy-maker and where the private sector may have rational expectations. The analogy between solving full-information differential games and designing policy in the presence of forward-looking expectations is explored first, before these two problems are considered in combination. Both the "term inconsistent" optimal policy which arises from strategic asymmetries, and various time consistent alternatives are discussed; and the approach is illustrated with an application to fiscal stabilisation policy in a Common Market.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Miller, Marcus & Salmon, Mark, 1983. "Dynamic Games and the Time Inconsistency of Optimal Policy in Open Economies," Economic Research Papers 269175, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:269175
    DOI: 10.22004/ag.econ.269175
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