On the credibility of macroeconomic reform and stabilization policies : a game -theoretical perspective

The formation of macroeconomic policy is conceptualized as on-going process of interaction between private individuals and a centralized policymaker. This interaction is inherently strategic in nature and lends itself to a game-theoretical treatment. Starting from the basic principle of rational expectations, the analysis advances a theoretical perspective on the related concepts of macroeconomic credibility (time-consistency) and reputation in a developing economy context. Therefore the focus will be on macroeconomic policies aimed at economic stability and structural reform, with the main emphasis on monetary and exchange rate policies dedicated to disinflation. The macroeconomic games described here are an attempt to formalize the process of policy formation which are governed by a dynamic process in which one of the players in the economy ...