Uncertainty analysis in the IS-LM model
2015
We introduce a model for uncertainty in the IS-LM linear macroeconomic model with exogenous parameters. An uncertainty profile u is a short and macroscopic description of an stressed situation. We use u to define a strategic game where two agents, the angel and the daemon, act selfishly and have different goals.
Those Nash equilibria provide the stable strategies in stressed situations, giving a natural estimation of risk. We apply this analysis to a linear version of the ISLM model and analyse the structure of the Nash equilibria in some particular
games.
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