Author(s)

Chihiro Morooka

Faculty of Economics, The University of Tokyo, Tokyo, Japan.

This paper analyzes finitely repeated policy games where the government and the private sector alternately revise their actions from the set of non-negative real numbers. Unlike previous studies on policy games, the one-shot inefficient Nash equilibrium, known as the Kydland-Prescott outcome, is avoided and only the optimal Ramsey outcome is established in subgame perfect equilibria. Therefore, the Ramsey policy is time-consistent in our model, whereas the Kydland-Prescott outcome is not.

Macroeconomic Dynamics, Inflation Targeting, Time Consistency, Ramsey Policy, Alternately Repeated Games, Anti-Folk Theorem

Morooka, C. (2020) Discretion Rather Than Rules: Ramsey Policy as the Unique Outcome. Theoretical Economics Letters, 10, 1199-1204. doi: 10.4236/tel.2020.106071.