Economic Research and Perspectives

Economic Research and Perspectives

Efficiency of Bond as a Central Bank Monetary Policy Instrument in Iran: an Application of Stackelberg Model and Game Theory

Authors
yeganeh Mosavi Jahromi
Asghar Abolhasani
Nasrin Mansouri
Bita Shayegani
Faculty of Economics, Payame Noor University
Abstract
Some economists believe that economic crises and problems, such as economic volatility, high unemployment and inflation and the social losses, stem from the government's economic intervention and the implementation of its imperative policies. In this regard, the lack of implementation of the government’s imperative policies by central bank and its independence is still a controversial issue. In the present paper, using Stackelberg model and game theory approach, the efficiency of bond issuance is evaluated as a result of central bank independence and its effect on social loss. For this purpose, a 3-player game including government, central bank and speculators having different objective functions, is designed for Iran. Modeling and numerical analyzing are performed using softwares GAMS and MAPLE during 2005 to 2009. According to minimization of social loss, the results indicate if the government does not play a dominant leadership role, and conversely, if the central bank exerts its leadership in making monetary policy via open market operations (central bank independence), the social loss can be reached to its minimum level.
Keywords
game theory
Stackelberg model
Social loss
Bond

Subjects

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Economic Research and Perspectives
Volume 18, Issue 3
Autumn 2018
Pages 1-26