Monetary policy games with broad money targets: a linear quadratic control analysis of the U.S. and Japan

The effect of monetary policies pursued by the Federal Reserve and the Bank of Japan in both a cooperative and noncooperative equilibrium situation is analyzed. Vector-autoregressive models are used in the analysis along with stochastic linear quadratic functions. Results show that there is no significant difference between the effect of the two equilibria. Furthermore, long-range monetary goals are seen to favorably affect the economic stability of the two countries.