A Qualitative Game of Interest Rate Adjustments with a Nuisance Agent
A qualitative game describes a situation in which antagonistic players strive to keep the evolutions of their state variables in predetermined constraint sets. We argue that a qualitative game model is a suitable mathematical representation of the struggle between a domestic central bank of a small...
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| Format: | Article |
| Language: | English |
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MDPI AG
2022-08-01
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| Series: | Games |
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| Online Access: | https://www.mdpi.com/2073-4336/13/5/58 |
| _version_ | 1797407243167072256 |
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| author | Jacek B. Krawczyk Vladimir P. Petkov |
| author_facet | Jacek B. Krawczyk Vladimir P. Petkov |
| author_sort | Jacek B. Krawczyk |
| collection | DOAJ |
| description | A qualitative game describes a situation in which antagonistic players strive to keep the evolutions of their state variables in predetermined constraint sets. We argue that a qualitative game model is a suitable mathematical representation of the struggle between a domestic central bank of a small open economy and a foreign central bank of a large economy to maintain their respective state variables within an acceptable band regardless of the other player’s choices. The actions of the foreign central bank affect the domestic exchange rate and, hence, domestic inflation, output gap and interest rate. However, these actions do not necessarily aim to destabilise the small open economy, nor do they take into account the state of the latter. The domestic bank’s problem, therefore, is similar to that of a game against nature. We refer to this type of qualitative game as a <i>nuisance-agent game</i> (or <i>NA-game</i>). We use viability theory to derive satisficing rules (in the sense of Simon) of nominal interest-rate adjustments for the domestic central bank of a small open economy in a qualitative NA-game against the foreign central bank. |
| first_indexed | 2024-03-09T03:38:51Z |
| format | Article |
| id | doaj.art-da99444441d94a1195eab4c5271b10c1 |
| institution | Directory Open Access Journal |
| issn | 2073-4336 |
| language | English |
| last_indexed | 2024-03-09T03:38:51Z |
| publishDate | 2022-08-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Games |
| spelling | doaj.art-da99444441d94a1195eab4c5271b10c12023-12-03T14:44:46ZengMDPI AGGames2073-43362022-08-011355810.3390/g13050058A Qualitative Game of Interest Rate Adjustments with a Nuisance AgentJacek B. Krawczyk0Vladimir P. Petkov1School of Mathematics and Statistics, The University of Sydney, Sydney, NSW 2006, AustraliaSchool of Economics and Finance, Victoria University of Wellington, Wellington 6011, New ZealandA qualitative game describes a situation in which antagonistic players strive to keep the evolutions of their state variables in predetermined constraint sets. We argue that a qualitative game model is a suitable mathematical representation of the struggle between a domestic central bank of a small open economy and a foreign central bank of a large economy to maintain their respective state variables within an acceptable band regardless of the other player’s choices. The actions of the foreign central bank affect the domestic exchange rate and, hence, domestic inflation, output gap and interest rate. However, these actions do not necessarily aim to destabilise the small open economy, nor do they take into account the state of the latter. The domestic bank’s problem, therefore, is similar to that of a game against nature. We refer to this type of qualitative game as a <i>nuisance-agent game</i> (or <i>NA-game</i>). We use viability theory to derive satisficing rules (in the sense of Simon) of nominal interest-rate adjustments for the domestic central bank of a small open economy in a qualitative NA-game against the foreign central bank.https://www.mdpi.com/2073-4336/13/5/58qualitative gamemacroeconomic modellingdynamic systemsviability theoryVikaasa |
| spellingShingle | Jacek B. Krawczyk Vladimir P. Petkov A Qualitative Game of Interest Rate Adjustments with a Nuisance Agent Games qualitative game macroeconomic modelling dynamic systems viability theory Vikaasa |
| title | A Qualitative Game of Interest Rate Adjustments with a Nuisance Agent |
| title_full | A Qualitative Game of Interest Rate Adjustments with a Nuisance Agent |
| title_fullStr | A Qualitative Game of Interest Rate Adjustments with a Nuisance Agent |
| title_full_unstemmed | A Qualitative Game of Interest Rate Adjustments with a Nuisance Agent |
| title_short | A Qualitative Game of Interest Rate Adjustments with a Nuisance Agent |
| title_sort | qualitative game of interest rate adjustments with a nuisance agent |
| topic | qualitative game macroeconomic modelling dynamic systems viability theory Vikaasa |
| url | https://www.mdpi.com/2073-4336/13/5/58 |
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