Coalition or non-coalition: Greedy scalar equilibrium in the semi-cooperative game with the role of speculators in the game between fiscal and monetary policy-makers

Subject Areas : Monetary Economics

Davoud Foroutannia ¹ , داود محمودی نیا ^{2 *}

1 - Department of Mathematics, Vali-e-Asr University of Rafsanjan, Rafsanjan, Iran, [e-mail]
2 - Economic Department, Vali-e-Asr University of Rafsanjan, Rafsanjan, Iran (Corresponding Author), [e-mail]

Received: 2024-09-03 Accepted : 2025-01-11 Published : 2025-01-11

Keywords: Game Theory, Coalition Game, Semi-Cooperative Game, Financial Policy, Speculators JEL Classification: O53, E6, E52, C72, C71,

Abstract :

The importance of the interaction between monetary and financial policymakers in determining the stability of macroeconomic variables has attracted the attention of many economic researchers in recent decades. However, in many studies, especially for developing countries, including Iran's economy, the role of currency market activists or speculators in this policy coordination has been less investigated. Therefore, in this study, assuming that there are three players in the game: the government (fiscal policymaker), the central bank (monetary policymaker) and currency speculators (interventionists in the currency market) and they seek to achieve an optimal policy between the three players in order to reach the highest level of social welfare of the society. For this purpose, after deriving the optimal policy rule for each player in the framework of two non-cooperative equilibria and semi-cooperative equilibrium of a coalition for mutual benefits, we are looking for an answer to the question that by implementing which strategy by players simultaneously, the economy faces more favorable consequences. The purpose of implementing the coalition in the game design is to reduce the profit of the speculator (remove this sector from the economy) and on the other hand, to move the losses of the government and the central bank towards zero. The results of this game show that the non-cooperative Nash equilibrium is where the government and the central bank adopt a contractionary policy and the currency market actors adopt a passive policy. On the other hand, the results of the greedy scalar equilibrium in the semi-cooperative coalition game show that the highest benefit is obtained when three players form an alliance and negotiate with each other to achieve the highest social welfare in the society and in this case, the consequences of the grand coalition are more than the non-cooperative Nash equilibrium outcome.

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