Bank of Italy paper tests monetary and fiscal defences against speculative attack
A new working paper published by the Bank of Italy tests the ability of a government and central bank to co-ordinate their policies to head off a potential speculative attack.
The paper, Central Bank and Government in a Speculative Attack Model, by Giuseppe Cappelletti and Lucia Esposito, derives a utility function for both government and central bank from their respective loss functions, and combines this with a state-contingent payoff to produce a game. Policy-makers can only influence the
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