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Wilko Bolt and Alexander F. Tieman
This paper derives an equilibrium for a competitive multi-stage game in which an agents' current action influences his probability of survival into the next round of play. This is directly relevant in banking, where a banks' current lending and pricing decisions determines its future probability of default. In technical terms, our innovation is to consider a multi-stage game with endogenous discounting. An equilibrium for such a multi-stage game with endogenous discounting has not been derived before in the literature.
Wilko Bolt and Alexander F. Tieman

game in every period constitutes a stationary subgame perfect equilibrium of the multi-stage game with endogenous discounting. Dynamic games with infinitely many stages in complex environments generally feature a continuum of equilibria. The usual equilibrium concept to be used in such settings is the Markov perfect equilibrium, but these equilibria are typically hard to characterize. 3 Instead, we will take a simpler route. We will focus on a stationary equilibrium in which the players are myopic. Myopic play describes a situation in which the players take the

Boriana Yontcheva
This paper presents a dynamic game of strategic delegation between a principal and an agent. The principal can choose between two organizational designs: a traditional hierarchy where she retains authority over the choice of projects to be implemented or a delegation where she allows her agent to select the project. The key objectives of this model are to identify the long-run determinants of the principal’s choice and verify the impact of the authority allocation on the agent’s effort levels and on the principal’s payoffs. We apply the model to the relationships between institutional donors and nongovernmental organizations.
Mr. Itai Agur

Front Matter Page Research Department Contents I. Introduction II. Game with unconstrained tools III. Constrained tools IV. Conflict among the authorities V. Coordination cost A. The impact of leaning on coordination B. Non-equivalence of the authorities VI. Social welfare implications A. Leaning and social welfare B. First-best VII. Alternative game forms A. Stackelberg game B. Dynamic games C. Merging the authorities VIII. Conclusions Appendix A Appendix B References Figures Figure 1. Output and

Mr. Antonio Spilimbergo

, Pierre; Carcillo, Stéphane No. 06/302 “On Myopic Equilibria in Dynamic Games with Endogenous Discounting” Bolt, Wilko; Tieman, Alexander F. No. 06/303 “Assessing Competitiveness After Conflict: The Case of the Central African Republic” Bakhache, Said; Lewis, Mark; Kalonji, Kadima D.; Nachega, Jean-Claude No. 06/304 “Trade Liberalization, Macroeconomic Adjustment, and Welfare: Unifying Trade and Macro Models” Choudhri, Ehsan U.; Faruqee, Hamid; Tokarick, Stephen 2007 No. 07/1 “Policy Credibility and Sovereign

International Monetary Fund. Research Dept.

Statistical Methods: Special Topics Testing for Credibility Effects. By Pierre-Richard Agénor and Mark P. Taylor 545 C43 Index Numbers and Aggregation Index Number Biases During Price Liberalization. By Kent Osband 287 C52 Model Evaluation and Testing The Forecasting Accuracy of Crude Oil Futures Prices. By Manmohan S. Kumar 432 C73 Stochastic and Dynamic Games Portfolio Preference Uncertainty and Gains from Policy Coordination. By Paul R. Masson 101 D Microeconomics D12 Consumer Economics: Empirical Analysis Forced Saving and Repressed Inflation in the Soviet

Sven Jari Stehn and Mr. David A Vines
We analyse optimal discretionary games between a benevolent central bank and a myopic government in a New Keynesian model. First, when lump-sum taxes are available and public debt is absent, we show that a Nash game results in too much government spending and excessively high interest rates, while fiscal leadership reinstates the cooperative outcome under discretion. Second, we show that this familiar result breaks down when lump-sum taxes are unavailable. With government debt, the Nash equilibrium still entails too much public spending but leads to lower interest rates than the cooperative policy, because debt has to be adjusted back to its pre-shock level to ensure time consistency. A setup of fiscal leadership does not avoid this socially costly outcome. Imposing a debt penalty onto the myopic government under either Nash or fiscal leadership raises welfare substantially, while appointing a conservative central bank is less effective.
Sven Jari Stehn and Mr. David A Vines

benevolent policymaker under discretion in order to encourage the central bank to create more inflation in the second period. Imposing a debt target onto the myopic government in these circumstances raises welfare, but does not reproduce the commitment outcome unless the central bank is made appropriately conservative. Kirsanova, Stehn and Vines ( 2005 : henceforth KSV) study dynamic games in a simple infinite-horizon model. KSV show that, when a myopic government and a benevolent central bank play a Nash game in response to a cost-push shock, a fight similar to that in

Mr. Itai Agur
The notion of a tradeoff between output and financial stabilization is based on monetary-macroprudential models with unique equilibria. Using a game theory setup, this paper shows that multiple equilibria lead to qualitatively different results. Monetary and macroprudential authorities have tools that impose externalities on each other's objectives. One of the tools (macroprudential) is coarse, while the other (monetary policy) is unconstrained. We find that this asymmetry always leads to multiple equilibria, and show that under economically relevant conditions the authorities prefer different equilibria. Giving the unconstrained authority a weight on "helping" the constrained authority ("leaning against the wind") now has unexpected effects. The relation between this weight and the difficulty of coordinating is hump-shaped, and therefore a small degree of leaning worsens outcomes on both authorities' objectives.