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Jean BARTHELEMY (Banque de France), “How much commitment does a government need ?”

November 15, 2021 @ 12:15 pm - 1:30 pm

The Macroeconomics Seminar:
Time: 12:15 pm – 13:30 pm
Date: 15th of November  2021

Room : 1003

Jean BARTHELEMY (Banque de France) “How much commitment does a government need ?”

Abstract : “We determine how much commitment a government facing a large set of small private agents needs to uniquely implement its desired outcome. We show that a large commitment is needed: when the time-consistency problem it faces is severe, when private agents need bold public actions to modify their decisions – for example due to deviations from rational expectations – or when the private sector can distort ex-post government’s incentives, e.g. through trigger strategies. Otherwise, a small commitment ability is sufficient for the government to implement its desired outcome. We derive implications for models of bailouts, inflation bias, and capital taxation.”

Joint work : Eric MENGUS (HEC-Paris)

Jean-Baptiste MICHAU (Polytechnique-CREST)