Issue: 2015/Vol.25/No.2, Pages 75-100
EQUILIBRIUM STRATEGIES IN A FISCAL-MONETARY GAME. A SIMULATION ANALYSIS
Irena Woroniecka-Leciejewicz
Cite as: I. Woroniecka-Leciejewicz. Equilibrium strategies in a fiscal-monetary game. A simulation analysis. Operations Research and Decisions 2015: 25(2), 75-100. DOI 10.5277/ord150205
Abstract
The results from a simulation analysis of the policy-mix have been presented, carried out in a fiscal-monetary game, in which fiscal and monetary authorities make decisions from the point of view of realizing their own respective economic objectives. In order to represent the interrelations between, on the one hand, the instruments of fiscal policy and of monetary policy, and, on the other hand – the economic effects resulting from their application, a modified logistic function was used. The method adopted enables consideration of the specificity of the effects of these instruments on the business cycle, consisting in the limited effectiveness of applying any extremely restrictive or expansive policy, and the respective impact on the economy. The simulation study was meant to show the influence exerted both by the parameters of the function and the priorities of the fiscal and monetary authorities on the Nash equilibrium state, corresponding to the choice of a particular combination of budgetary and monetary policies.
Keywords: fiscal-monetary game, policy-mix, fiscal policy, monetary policy, the Nash equilibrium
Received: 22 January 2015 Accepted: 5 May 2015