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The timing of moves in conventional games is deterministic. To better capture the uncertainty of many real world situations, we postulate a stochastic timing framework. The players get a revision opportunity at a pre-specified time (common to them) with some known probability (different across them). The probabilistic revisions resemble the Calvo (1983) timing widely used in macroeconomics, and by nesting the standard simultaneous move game and Stackelberg leadership they can serve as a "dynamic commitment" device. The analysis shows how the revision time and probabilities affect the outcomes in games with multiple and/or inefficient equilibria. Unsurprisingly, we show in the Battle of the sexes that commitment -low revision probability relative to the opponent -improves the player's chances to uniquely achieve his preferred outcome (i.e. to dominate). What may, however, seem surprising is that the less committed (higher revision probability) player may dominate the game under some circumstances (for which we derive the necessary and sufficient conditions). This is in contrast to the intuition of Stackelberg leadership where the more committed player (leader) always does so. The paper then applies the framework to the strategic interaction between monetary and fiscal policies in the aftermath of the Global financial crisis. It is modelled as the Game of chicken in which a double-dip recession and deflation can occur when both policies postpone stimulatory measures -attempting to induce the other policy to carry them out. In order to link our theoretic results to the real world, we develop new indices of monetary and fiscal policy leadership (pre-commitment) and quantify them using institutional characteristics of high-income countries. This exercise shows that the danger of the undesirable deflationary scenario caused by a monetary-fiscal policy deadlock may be high in some major economies.

In this paper we test the sustainability of U.S. public debt for the period 1916–2012 by analyzing how the primary surplus to gross domestic product (GDP) responds to changes in the debt to GDP ratio in a time‐varying parameter model. Further, we determine the stationarity property of the debt/GDP ratio while accommodating possible breaks in the data caused by wars and economic crisis under both the null and alternative hypotheses of an endogenous unit root test. The results show that the U.S. public debt was sustainable until 2005 when the primary surplus to GDP reacted negatively to the debt/income ratio. This is further exacerbated during the global financial crisis when primary surpluses continued to fall with increased debt, thus jeopardizing the sustainability of fiscal policy. While the stationarity test shows that the U.S. fiscal debt/GDP ratio is sustainable, it fails to highlight the risk that its debt policy has been becoming unsustainable in recent years. (JEL H62, E62, C2)

The aftermath of the Global …nancial crisis has seen two types of monetary policy concerns. Some economists (e.g. Paul Krugman) worry primarily about possible de‡ation caused by a secular stagnation. In contrast, others (e.g. John Taylor) worry about excessively high in ‡ation caused by quantitative easing and monetization of …scal imbalances. We show that some countries should fear both -de ‡ation in the short term and high in ‡ation in the long term -whereas some countries are unlikely to experience either. This is done in a game theoretic framework with dynamic leadership (stochastic revisions of actions). Such framework enables us to examine strategic monetary-…scal interactions as well as policymakers'incomplete information about the economic recovery (such as during 2010-2014). Our empirical section then quanti…es indices of monetary and …scal leadership for high-income countries to assess their de ‡ationary/in ‡ationary prospects. It is shown, for example, that undesirable departures from price stability, both in the short term and long term, are much more likely in the United States and Japan than in Australia or New Zealand.

Highly diverse responses of monetary and fiscal policies have been observed around the world in the post global financial crisis period of 2010-2014. While some countries implemented various mixes of monetary and/or fiscal stimuli, others have seen austerity. Our paper explores whether the strategic interaction between the central bank and government can shed some light on this diversity, and what lessons about the institutional design of the two policies can be learnt from it. This is done by mapping a reduced-form New Keynesian model into a generalised game-theoretic framework with deterministic and stochastic revisions of policy actions. Our focus is on the short-term policy interaction regarding stabilisation of an adverse shock (rather than long-term issues related to fiscal sustainability and unpleasant monetarist arithmetic). Particular attention is paid to the effect of institutional and structural features such as inflation targeting, monetary and fiscal implementation lags, and the policies' leadership. I IntroductionThe aftermath of the global financial crisis has seen a variety of monetary and fiscal policy mixes across the globe. Ranging from fiscal stimulus to austerity measures to quantitative easing, policy-makers in governments and central banks have used a number of different economic recipes. In an attempt to understand this plurality and provide novel insights and policy recommendations, this paper examines monetary-fiscal interactions following a major adverse shock.Our focus is on the strategic aspect of the monetary/fiscal responses to the shock. This is because the literature is scarce on this point, with most papers assuming that the two policies are able and willing to perfectly coordinate their actions. The 2010-2014 period has, however, shown us that this is not necessarily the case. For example, while central banks have attempted to lower long-term yields via quantitative easing, governments have tended to issue long-term rather than short-term bonds, and thus sabotage the central banks' stimulatory efforts. 1

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