Theoretical Economics, Volume 19, Number 3 (July 2024)

Theoretical Economics 19 (2024), 1119–1150


Time-consistent implementation in macroeconomic games

Jean Barthelemy, Eric Mengus

Abstract


The commitment ability of governments is neither infinite nor zero but intermediate. In this paper, we determine the commitment ability that a government needs to implement a unique equilibrium outcome and rule out self-fulfilling expectations. We show that, in a large class of static macroeconomic games, the government can obtain a unique equilibrium with any low level of commitment ability. We finally derive implications for models of bailouts and capital taxation.

Keywords: Implementation, limited commitment, policy rules

JEL classification: C73, E58, E61, G28

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