A complementary note on the issue of time inconsistency revisited as an extended game

Grégoire Rota-Graziosi (1) , Hubert Kempf (2, 3)

1 CERDI - Centre d'Études et de Recherches sur le Développement International
2 PSE - Paris School of Economics
3 CES - Centre d'économie de la Sorbonne

Cellini and Lambertini endogenize through a timing game the moves of the central bank and the private sector in a model of monetary policy la Barro and Gordon. They find a multiplicity of equilibria, as the two Stackelberg outcomes emerge as the solutions of the timing game, with different inflation levels. By using the risk-dominance criterion to select the equilibrium we prove that there is a discontinuity in the inflation bias, depending on the inflation aversion of the private sector.

Mots clés: Risk Dominance; Endogenous timing; first-second-mover advantage; monetary policy; time consistency

Domaines: Economies et finances

Grégoire Rota-Graziosi, Hubert Kempf. A complementary note on the issue of time inconsistency revisited as an extended game. International Game Theory Review, 2011, 13 (4), pp.475-480. ⟨10.1142/S0219198911003106⟩. ⟨halshs-00715222⟩