The U.K.'s decision to leave the EU and the voting in of the protectionist Donald Trump to the US presidency has drawn both the UK and the USA into the Nash Trap.U.S. mathematician John Nash (the movie ‘A Beautiful Mind') postulated that Adam Smith's declaration that ‘In competition,...

Arms races – enduring rivalries between pairs of hostile powers, which prompt competitive acquisition of military capability – appear to be a pervasive phenomenon. From the past Cold War competition, between the US and the USSR, to present regional antagonisms, such as India and Pakistan,...

Why is inflation so much lower and at the same time more stable in developed economies in the 1990s, compared with the 1970s? This paper suggests that the United Kingdom, United States and other countries may have escaped from a volatile inflation equilibrium. Our argument builds on the story...

We study the propagation of monetary shocks in a sticky-price general-equilibrium economy where the firms’ pricing strategy feature a complementarity with the decisions of other firms. In a dynamic equilibrium the firm’s price-setting decisions depend on aggregates, which in turn depend on...

This paper derives the equilibrium Nash strategies of two central banks for economies related by trade. Both policy makers seek to stabilize inflation and output but are constrained by their economies' interactions. Into this mix is added the further assumption of Knightian uncertainty regarding...

We study the propagation of monetary shocks in a sticky-price general-equilibrium economy where the firms' pricing strategy feature a complementarity with the decisions of other firms. In a dynamic equilibrium the firm's price-setting decisions depend on aggregates, which in turn depend on...

In the light of the recent financial crisis, we investigate the effects generated by limited asset market participation on optimal monetary and fiscal policy, where monetary and fiscal authority are independent and play strategically. We find that limited asset market participation strongly...

Global games of regime change that is, coordination games of incomplete information in which a status quo is abandoned once a sufficiently large fraction of agents attacks it have been used to study crises phenomena such as currency attacks, bank runs, debt crises, and political change. We...

This paper examines the ability of a policy maker to control equilibrium outcomes in a global coordination game; applications include currency attacks, bank runs, and debt crises. A unique equilibrium is known to survive when the policy is exogenously fixed. We show that, by conveying...

We consider a simple model that combines elements of search and social learning. Acting in sequence, and observing the action adopted by a previous agent, agents must search for an action. We explore why agent heterogeneity may increase expected payoffs and demonstrate that social learning may...