THE STABILITY OF MULTI-COUNTRY UNIONS: SYSTEM THEORETIC ISSUES AND POLICY IMPLICATIONS

摘要

Multicountry unions pose stability problems that can be tackled by dynamic game models of non-conventional form, with payoff functions replaced by subsets of the state-space. A country aspiring to join a multicountry union must guarantee that a set of economic indicators stays within the bounds dictated by the union. Mathematically, this translates into membership of the state vector to a convex set. When such a set-membership holds notwithstanding policy actions of other member countries (under the domestic constraints imposed to each) the overall system exhibits a kind of macroeco-nomic stability termed in this paper an Invariant Equilibrium. The paper presents this theory in the case of two-person linear discrete-time games and discusses the significance of the results for economic policy.