Abstract

LIMAS MALDONADO, Erick José. Monetary policy coordination between two central banks: An analysis of game theory. Econ: teor. práct [online]. 2016, n.44, pp.169-192. ISSN 2448-7481.

This paper analyzes the conditions under which a small country would opt to follow a Nash-style or a Stackelberg-style game. This poses a two-country model with supply and demand shocks, where interest rate is the central banks' instrument. The article shows that if there are supply shocks, Stackelberg's solution is more suitable for a small country; whereas that in case of demand shocks, the preferred solution is Nash's. Thus, the key point is to determine whether or not perturbations are inducing a trade-off in the central bank's objective function.

Keywords : central banks; monetary policy; coordination; Nash; Stackelberg; game theory.

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