Preface: Special Issue on Dynamic Games in Macroeconomics

Abstract

Many important questions in macroeconomics can be formulated as a dynamic game. For example, in dynamic general equilibrium models with public policy, where policymakers face a common agreed upon social objective, the optimal plans of the current government can fail to be time consistent (e.g., Kydland and Prescott [15] and Barro and Gordon [8]). This time inconsistency problem can be studied as a constrained optimization problem with forwardor backward-looking endogenous constraints on an enlarged state space (e.g., see Kydland and Prescott [16], Rustichini [27], Marcet and Marimon [21], or Feng et al. [13]), or as a dynamic game (i.e., Pollak [26], Peleg and Yaari [23], Phelan and Stacchetti [24]). A related situation arises when households make consumption-savings decisions and their intertemporal preferences are dynamically inconsistent. This problem was first studied in Strotz [29] andPollak [26] andhas been the focus of an extensive literature inmacroeconomics (e.g., see Laibson [17] and Bernheim et al. [10]). Yet another prototype dynamic game in macroeconomics arises in altruistic models of economic growth where the dynastic choice problem between generations is a strategic one. Models in this spirit were first introduced in Phelps and Pollak [25] and subsequently studied in Bernheim and Ray [9], Leininger [18], Amir [3], and Balbus et al. [5,6], among others. One additional prototype of a dynamic games and strategic interactions in macroeconomics occurs in models of endogenous borrowing constraints and sustainable debt (e.g., Chari and Kehoe [11] and Alvarez and Jermann [4]). This special issue of Dynamic Games and Applications collects recent papers providing new results on the existence, characterization, and the computation of dynamic equilibria in macroeconomic models with strategically interacting agents. The volume contains work in both dynamic and stochastic games. In the paper by Messner and Pavoni [22], the authors reconsider the nature of the solutions to incentive-constrained dynamic programs generated by recursive saddlepoint methods pioneered in the work of Marcet and Marimon [21].