BoJ research uses ‘global game’ to explain zero inflation
Co-ordination may lead to firms refusing to raise prices, author shows
Firms may end up in a situation where none dare to raise prices when certain conditions prevail in an economy, according to a model presented in a Bank of Japan working paper today (August 8).
Mitsuru Katagiri sets up a "global game" in the paper Co-ordination in Price Setting and the Zero Lower Bound: A Global Games Approach. In a global game, players act on the basis of uncertain signals about the underlying "real" world. Earlier research implies a small amount of noise can lead to the
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