Analyzing the Relationship among Government, Central Bank and Speculators in Iran: Approach of Game Theory and Nash Equilibrium

Document Type : Original Article

Authors

1 PhD Student and; Academic Coach in PAYAM NOOR University

2 Associate Professor of Payam Noor University

3 Assistant Professor of PAYAM NOOR University

Abstract

The experience of recent years has shown monetary policies have caused economic fluctuations rather than affect real economy because of administrative  interest rate, issuing bonds and increasing their returns. These actions not only have increase the cost of government borrowing, but also increasing the minimum rates of absorbing capital in other markets and finally increased the general level of prices as well. In such situation, study about the relationship between  fiscal and monetary authorities and speculators to achieving economic goals is important.therefore, in this paper,the relationship between three players, including government, central bank and speculators, has been analyzed using game theory according to Nash approaches in Iran, during (1384- 1388). For this purpose, a loss function (objective function) is defined for each player and via them the social loss is calculated. For obtaining quantitative results GAMS and MAPLE  software have been used. Based on the results, the minimum of social loss along with improving speculators welfare (less loss) is obtained through central bank independence from the government. 

Keywords


- Adam, K. & Billi, R. (2005). Monetary and Fiscal Interactions with Commitment and the Value of Monetary Conservatism. Mimeo, European Central Bank.
- Abdoli, G. (2011), Game Theory and its Applications (Static and Dynamic Games with Complete Information). Tehran: University Jihad Press. University of Tehran, Second Edition, (In Persian).
- Abdoli, G. (2013), Game Theory and its Applications (The Games of Incomplete Information, Evolve and Cooperative. SAMT Press, Second Edition, (In Persian).
- Alesina, A., & Summers, L. H. (1993). Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence. Journal of Money, Credit and Banking, 25, 151–62.
- Baral, P. (2013). Essays on Formation of  Networks and Its Applications, Indiana University.
- Bade, R. & Parkin, M. (1988). Central Bank Laws and Inflation: a Comparative Analysis. Mimeograph University of Western Ontario.
- Bénassy, J.P. (2007). Money, Interest, and Policy: Dynamic General Equilibrium in a Non-Ricardian World. MIT Press.
- Bodart, V. (1990). Central Bank Independence and Monetary Policy Effectiveness: A Comparative Analysis. Washington D.C. International Monetary Fund.
- Burdekin, R.C.D. & Willet, T.D. (1990). Central Bank Reform: The Federal Reserve in International Perspective. Claremont-Mckenna College.
- Carfì, D. & Musolino, F. (2011). Game Complete Analysis for Financial Markets Stabilization. Journal of Advanced Studies in Finance (JASF), 4(II), 74-100.
- Carfì, D. & Musolino, F. (2012) Game Theory Model for European Government Bonds Market Stabilization: a Saving-State Proposal, 29, 2417-2426.
- Debelle, G. & Fischer, S. (1994). How Independent Should be a Central Bank. Federal Reserve Bank of Boston Conference Series 38
- Dixit, A. & Lambertini, L. (2001), Monetary-Fiscal Policy Interaction and Commitment versus Discretion in a Monetary Union. European Economic Review, 45, 977-987.
- Galariotis, C.E., Krokida, S.I. & Spyrou, S.I. (2015). Bond Market Investor Herding: Evidence from the European Financial Crisis. International Review of Financial Analysis, 48, 367–375.
- Grilli,V., Donato, M. & Tabellini, G. (1991). Political and Monetary Institutions and Public Financial Policies in the Industrial Countries. Economic Policy. 13, 92-341.
- Hausken, K. & Plumper.T. (2002). Containing Contagious Financial Crises: the Political Economy of Joint Intervention in to the Asian Crisis. Public Choice, 111, 209–235.
-  Saulo, H.B & Santos, D. (2013). Fiscal and Monetary Policy Interactions: A Game Theoretical Approach. Annals of Operations Research, 206(1), 341–366
- Engwerda, J., Mahmoudinia, D. & Dalali, I.R. (2016). Government and Central Bank Interaction Under Uncertainty: A Differential Game Approach. Iranian Economic Review, 20(2), 225-259.
- Kirsanova, T., Stehn, S.J. & Vines, D. (2005), The Interactions between Fiscal Policy and Monetary Policy, 06, 1473-3307.
- Lambertini, L. & Rovelli, R. (2003). Monetary and Fiscal Policy Coordination and Macroeconomic Evidence on Optimal Policy using a Structural New-Keynesian Model. Journal of Macroeconomics, 26, 281–285.
- Lopreato, R. (2006), Opapeld a Polític a Fiscal: Um examed a visão Convencional, Unicamp: Institutode Economia, Tex to Para 119.
- Mahmoudinia, D., Engwarda, J., Dallali, R. Bakhshi, R. & Fakhar, M. (2016). Game Theory and its Role in Determining Policies Optimization in the Strategic Interaction between Monetary Policy and Fiscal Policymakers. Journal of Applied Economics of the Iran, 18, 1-34, (In Persian).
- Mohsenpour, F. (2015). The Determine the Optimal Rule of Monetary and Financial for Iran Economic, Game Theory Approach. MA Thesis, University of Tehrab, (In Persian).
- Muscatelli, V. A., Tirelli, P., & Trecroci, C. (2004). Fiscal and Monetary Policy Interactions: Empirical Evidence and Optimal Policy using a Structural New-Keynesian Model. Journal of Macroeconomics, 26(2), 257-280.
- Petit, M. (1989), Fiscal and Monetary Policy Co-Ordination: A Differential Game Approach. Journal of Applied Econometrics, 4(2), 161-179.
- Pindyck, R. (1978). Pricing Policies for a Two-Part Exhaustible Resources. Review of Economics and Statistics, 60, 238-251.
- Tabellini, G. (1986). Money, Debt and Deficits in a Dynamic Game. Journal of Economic Dynamics and Control, 10, 427-442.
- Woodford, M. (2003). Interest and Prices: Foundations of a Theory of  Monetary Policy, Princeton University Press, New Jersey.