Robust International Monetary Policy Games

This paper derives the equilibrium Nash strategies of two central banks for economies related by trade. Both policy makers seek to stabilize inflation and output but are constrained by their economies' interactions. Into this mix is added the further assumption of Knightian uncertainty regarding the channels of monetary policy, compelling banks to adopt robust strategies against worst outcomes. The result is a Nash game between the two central banks, each of which plays a Stackelberg gane against an "evil" player representing model uncertainty