Fiscal and Monetary Policy Coordination Strategies: The Case of Armenia

Abstract

The aim of the article is to study the strategies for coordinating fiscal and monetary policy on the example of the Republic of Armenia based on a game model. In order to describe the behavior of the government and the Central Bank in the game model, the indicators of high-tech output and core inflation were selected as objective functions, respectively. As a desirable Pareto optimal solution to the considered game, such a behavioral combination of the playing parties was chosen, in which case the minimum core inflation combined with the maximum output of high-tech output would be ensured, from the possible scenarios of growth in government spending and normal inflation. The study showed that one of the essential combinations of the game matrix of profitability characterizing the policy of the playing pair, which describes the true established Nash equilibrium, is in fact not Pareto optimal at the same time.