Over the past two decades, academic economics has undergone a mild revolution in methodology. The language, concepts and techniques of noncooperative game theory have become central to the discipline. This book provides the reader with some basic concepts from noncooperative theory, and then goes on to explore the strengths, weaknesses, and future of the theory as a tool of economic modelling and analysis. The central theses are that noncooperative game theory has been a remarkably popular tool in economics over the past decade because it allows analysts to capture essential features of dynamic competition and competition where some parties have proprietary information. The theory is weakest in providing a sense of when it - and equilibrium analysis in particular - can be applied and what to do when equilibrium analysis is inappropriate. Many of these weaknesses can be addressed by the consideration of individuals who are boundedly rational and learn imperfectly from the past. Written in a non-technical style and working by analogy, the book, first given as part of the Clarendon Lectures in Economics, is readily accessible to a broad audience and will be of interest to economists and students alike. Knowledge of game theory is not required as the concepts are developed as the book progresses.

Game Theory and Economic Modelling

Purely forward-looking versions of the New Keynesian Phillips curve (NKPC) generate too little inflation persistence. Some authors add ad hoc backward looking terms to address this shortcoming. We hypothesize that inflation per? sistence results mainly from variation in the long-run trend component of inflation, which we attribute to shifts in monetary policy. We derive a version of the NKPC that incorporates a time-varying inflation trend and examine whether it explains the dynamics of inflation. When drift in trend inflation is taken into account, a purely forward-looking version of the model fits the data well, and there is no need for backward-looking components. (JEL E12, E31, E52) In this paper we consider the extent to which Guillermo Calvo's (1983) model of nominal price rigidities can explain inflation dynamics without relying on arbitrary backward-looking terms. In its baseline formulation, the Calvo model leads to a purely forward-looking New Keynesian

https://www.jstor.org/stable/pdfplus/29730163.pdf

Trend Inflation, Indexation, and Inflation Persistence in the New Keynesian Phillips Curve

We estimate vector autoregressions with drifting coefficients and stochastic volatility to investigate whether US inflation persistence has changed. We focus on the inflation gap, defined as the difference between inflation and trend inflation, and we measure persistence in terms of short- to medium-term predictability. We present evidence that inflation-gap persistence increased during the Great Inflation and that it fell after the Volcker disinflation. We interpret these changes using a dynamic new Keynesian model that highlights the importance of changes in the central bank's inflation target. (JEL E12, E31, E52, E58)

/pdf/inflation-gap-persistence-in-the-us-4e0jorczns.pdf

Inflation-Gap Persistence in the US

Investors’ cone dence in the quality and integrity of corporate e nancial reports has been seriously shaken of late. The ever-increasing procession of headlines about fraudulent earnings, ine ated asset values and understated liabilities reported by erstwhile leading companies— the likes of Enron, Tyco, WorldCom, Xerox and a host of lesser household names, all audited by major accounting e rms— suggests systematic dee ciencies in the accounting standards and governance systems that generate e nancial information of public companies, not to mention in the regulatory systems overseeing them. Both aggregate data and cross-sectional research cone rm the anecdotal evidence that the correspondence to reality of reported earnings deteriorated throughout the 1990s. For example, the gap between aggregate earnings and taxable corporate income, which abstracts according to Internal Revenue Service rules from most estimates and provisions often used to manipulate earnings, has been continuously widening throughout the 1990s (Desai, 2002). Also increasing during the 1990s was the gap between earnings and the corporate proe ts reported in the national income and product accounts, which are based on e rms’ taxable income adjusted for current values of inventory and depreciation. While part of the difference between earnings and taxable income is probably due to increasing corporate sophistication of tax management, manipulation of earnings played a major role in the widening gap (Lev and Nissim, 2002a). Firm-specie c data corroborate the increasing vulnerability of earnings to manipulation. The number of earnings restatements by public companies, often in the wake of admitted reporting improprieties, has skyrocketed in the last three to four years (Wu, 2002). Also, the frequency of e rms beating analysts’ forecasts of

/pdf/corporate-earnings-facts-and-fiction-red8u8vcu5.pdf

Corporate Earnings: Facts and Fiction

The aim of this introductory article is to pr ovide a critical overview of how informality has been defined and measured, together with selected findings on its extent and character, and a summary of competing views regarding its role in contemporary economies and how it can be tackled. The outcome is a set of conceptual frameworks for understanding both the burgeoning literature on infor- mal employment and how each of the perspectives presented in this Special Issue contributes to the advancement of knowledge on this subject so as to set the scene for the articles that follow.

Informal employment in developed and developing economies: Perspectives and policy responses

Fiscal and monetary interaction under monetary policy uncertainty

This paper extends a well-known macroeconomic stabilization game between monetary and fiscal authorities developed by Dixit and Lambertini (American Economic Review 93: 1522–1542) to multiplicative (policy) uncertainty. We find that even if fiscal and monetary authorities share a common output and inflation target (i.e., the symbiosis assumption), the achievement of the common targets is no longer guaranteed; under multiplicative uncertainty, in fact, a time consistency problem arises unless policymakers’ output target is equal to the natural level.

https://economics.soc.uoc.gr/wpa/docs/dmg.pdf

Policy uncertainty, symbiosis, and the optimal fiscal and monetary conservativeness

Real rigidities, productivity improvements and investment dynamics

This paper analyzes the behavior of a central bank under strong (“Knightian”) uncertainty when the short-run trade-off between output and inflation is represented by the sticky information Phillips curve proposed by Mankiw and Reis [Quarterly Journal of Economics 117(4), 1295–1328 (2002)]. By solving the robust control problem analytically, we show why model uncertainty does not affect the optimal monetary policy response to demand and productivity shocks, whereas it causes a stronger reaction of the monetary policy instrument to a cost-push (i.e., markup) shock. Differently from what occurs in sticky price models, the antiattenuation effect can result in a degree of price level stabilization that is greater or less than that experienced in the rational expectation model, depending on the central bank's degree of conservatism. These results dramatically affect the rationale for delegating monetary policy to a central banker more conservative than the society.

https://www.cambridge.org/core/services/aop-cambridge-core/content/view/S1365100509000480

Francesco Giuli

Papers

Fiscal and monetary interaction under monetary policy uncertainty

Policy uncertainty, symbiosis, and the optimal fiscal and monetary conservativeness

Real rigidities, productivity improvements and investment dynamics

Robust policies in a sticky information economy

Tackling undeclared work