Game-theoretic analysis reveals unique equilibria under minimal government commitment across macroeconomic models, suggesting policy credibility requires far less enforcement than assumed.
The commitment ability of governments is neither infinite nor zero but intermediate. In this paper, we determine the commitment ability that a government needs to implement a unique equilibrium outcome and rule out self‐fulfilling expectations. We show that, in a large class of static macroeconomic games, the government can obtain a unique equilibrium with any low level of commitment ability. We finally derive implications for models of bailouts and capital taxation.
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Barthélemy et al. (2024) studied this question.
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