EQUILIBRIUM CHARACTERISTICS OF SOVEREIGN DEFAULT IN A TWO COUNTRY CURRENCY AREA: A TWO PLAYER DYNAMIC HIERARCHICAL GAME

TitleEQUILIBRIUM CHARACTERISTICS OF SOVEREIGN DEFAULT IN A TWO COUNTRY CURRENCY AREA: A TWO PLAYER DYNAMIC HIERARCHICAL GAME
Publication TypeJournal Article
Year of Publication2017
AuthorsHERNÀNDEZ-DEL-VALLE, ADRIÀN, MARTÌNEZ-GARCÌA, CLAUDIAI, VENEGAS-MARTÌNEZ, FRANCISCO
Secondary TitleCommunications in Applied Analysis
Volume21
Issue2
Start Page187
Pagination30
Date Published02/2017
Type of Workscientific: mathematics
ISSN1083-2564
AMS90A09, 91B28
Abstract

This paper is aimed at developing a two player dynamic hierarchical game called the Sovereign Default Game in order to study the optimality of default in a two country currency area where the larger economy is the leader and the smaller economy acts as the follower. Our approach is a monetary general equilibrium model where the leader sets the monetary policy in the currency area but the follower experiences a real exchange rate over-valuation that may lead to default. We find two maxima of maxima, one of them “perverse” in the sense that it generates moral hazard.
URLhttp://www.acadsol.eu/en/articles/21/2/3.pdf
DOI10.12732/caa.v21i2.3
Short TitleTwo Player Dynamic Hierarchical Game
Alternate JournalCAA
Refereed DesignationRefereed
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