University of Tehran Iranian Economic Review 1026-6542 20 2 2016 04 01 Government and Central Bank Interaction under Uncertainty: A Differential Games Approach 225 259 58801 10.22059/ier.2016.58801 EN Jacob Engwerda Tilburg School of Economics and Management, Tilburg University, Netherlands. Davoud Mahmoudinia Department of Economics, University of Isfahan. Rahim Dalali Isfahani Department of Economics, University of Isfahan. Journal Article 2016 02 08 <strong><span style="text-decoration: underline;">Abstract</span></strong> <br /> <br /> Today, debt stabilization in an uncertain environment is an important issue. In particular, the question how fiscal and monetary authorities should deal with this uncertainty is of much importance. Especially for some developing countries such as Iran, in which on average 60 percent of government revenues comes from oil, and consequently uncertainty about oil prices has a large effect on budget planning, this is a significant question. For this reason, we extend in this paper the well-known debt stabilization game introduced by Tabellini (1986). We incorporate deterministic noise into that framework. Also we solve this extended game under a Non-cooperative, Cooperative and Stackelberg setting assuming a feedback information structure. The main result shows that under all three regimes, more active policies are used to track debt to its equilibrium level and the smaller this equilibrium level becomes, the more fiscal and monetary authorities are concerned about noise. Furthermore, the best-response policy configuration if policy-makers are confronted with uncertainty seems to depend on the level of anticipated uncertainty. <br />  https://ier.ut.ac.ir/article_58801_e391c8f9edd172cc57546f33b90759ac.pdf