Uncertainty Analysis of Simple Macroeconomic Models Using Angel-Daemon Games

TL;DR

This paper introduces an angel-daemon game framework to analyze uncertainty in macroeconomic models, providing a strategic approach to estimate stable perturbed economic scenarios and policy impacts.

Contribution

It presents a novel game-theoretic method for uncertainty analysis in macroeconomic models using angel and daemon agents to identify stable strategies under perturbations.

Findings

Nash equilibria offer stable strategies in perturbed macroeconomic models.

The framework captures different economic situations through uncertainty profiles.

Application to IS-LM and IS-MP models demonstrates practical utility.

Abstract

We propose the use of an angel-daemon framework to perform an uncertainty analysis of short-term macroeconomic models with exogenous components. An uncertainty profile $\mathcal U$ is a short and macroscopic description of a potentially perturbed situation. The angel-daemon framework uses $\mathcal U$ to define a strategic game where two agents, the angel and the daemon, act selfishly having different goals. The Nash equilibria of those games provide the stable strategies in perturbed situations, giving a natural estimation of uncertainty. In this initial work we apply the framework in order to get an uncertainty analysis of linear versions of the IS-LM and the IS-MP models. In those models, by considering uncertainty profiles, we can capture different economical situations. Some of them can be described in terms of macroeconomic policy coordination. In other cases we just analyse the results of the system under some possible perturbation level. Besides providing examples of application we analyse the structure of the Nash equilibria in some particular cases of interest.