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- Title
Inflation: The Invisible Foot of Macroeconomics.
- Authors
Carter, Michael; Maddock, Rodney
- Abstract
We take a simple, well-known macroeconomic model and treat it as a game between two players-the government and an all-embracing union. The payoffs have the form of a prisoner's dilemma. The equilibrium outcome produces unwanted inflation and is not Pareto optimal. This is despite the fact that all participants are assumed to have full information. This result is shown to be quite robust to the form of the model and is not affected if one of the players is forced to announce its strategy in advance. This we call the invisible foot of macroeconomics.
- Subjects
ECONOMIC equilibrium; MACROECONOMICS; PRICE inflation
- Publication
Economic Record, 1987, Vol 63, Issue 181, p120
- ISSN
0013-0249
- Publication type
Article
- DOI
10.1111/j.1475-4932.1987.tb00644.x