The Interaction of the Government and Central Bank Behavior in a Leader-Follower Game despite of the Risk Premium

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MAHMOUDINIA DAVOUD; zeydabadi athareh

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Journal: Financial Economics Year:2021 | Volume:15 | Issue:54 Page(s): 107-135

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Title

The Interaction of the Government and Central Bank Behavior in a Leader-Follower Game despite of the Risk Premium

Author(s)

MAHMOUDINIA DAVOUD | zeydabadi athareh | Issue Writer Certificate

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Abstract

Coordination of monetary and fiscal policies is crucial for achieving economic growth in the context of price stability. Therefore, the monetary and fiscal authorities must have the necessary coordination and coordination in implementing their policies in order to achieve better results. On the other hand, the game theory is one of the concepts that has many applications in different sciences and fields. Game theory is of particular importance in economics, since it analyzes the interaction of individuals and their decisions. Thus, in the present study, the coordination of monetary and fiscal policies in the long run and its effect on macroeconomic variables are investigated according to a mathematical model. Accordingly, the interaction of monetary and fiscal policies are taken into consideration in the form of differential games with respect to the risk premium. On the other hand, the method of solving the game by Stackelberg game and the mathematical method is to solve the method of optimal control of Pontryagin's principle. In this regard, the results show that the interaction of monetary and fiscal authorities in the fiscal leadership creates better consequences in the society than the monetary leadership so that the fiscal leadership will decreases the government debts further and brings the debts closer to their desired level. On the other hand, if the policy makers consider the longer-term horizons for applying their policies and lead to the reduced risk premium, reduced target budget deficit and the real interest rates by proper policy-making, they can reduce the level of government debt and thereby the society will be in a better situation.

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APA: Copy

MAHMOUDINIA, DAVOUD, & zeydabadi, athareh. (2021). The Interaction of the Government and Central Bank Behavior in a Leader-Follower Game despite of the Risk Premium. JOURNAL OF FINANCIAL ECONOMICS (FINANCIAL ECONOMICS AND DEVELOPMENT), 15(54 ), 107-135. SID. https://sid.ir/paper/413099/en

Vancouver: Copy

MAHMOUDINIA DAVOUD, zeydabadi athareh. The Interaction of the Government and Central Bank Behavior in a Leader-Follower Game despite of the Risk Premium. JOURNAL OF FINANCIAL ECONOMICS (FINANCIAL ECONOMICS AND DEVELOPMENT)[Internet]. 2021;15(54 ):107-135. Available from: https://sid.ir/paper/413099/en

IEEE: Copy

DAVOUD MAHMOUDINIA, and athareh zeydabadi, “The Interaction of the Government and Central Bank Behavior in a Leader-Follower Game despite of the Risk Premium,” JOURNAL OF FINANCIAL ECONOMICS (FINANCIAL ECONOMICS AND DEVELOPMENT), vol. 15, no. 54 , pp. 107–135, 2021, [Online]. Available: https://sid.ir/paper/413099/en

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