Strategic Interactions Between Fiscal and Monetary Authorities: A Comparative Game-Theoretic Analysis of the V4 Economies

Macroeconomic stabilization depends on the strategic interplay between the fiscal and monetary authorities operating under distinct mandates. This study evaluates these interactions across the Visegrad Group (Hungary, Czechia, Poland, and Slovakia) over 2010–2024. Each authority seeks to minimize an explicit quadratic loss function. A transmission block constrains this optimization, meaning policy affects output and inflation with a one-year lag. The resulting first-order conditions act as the reaction functions. Their intersection creates a state-contingent Nash equilibrium. We estimate the transmission block on the pooled panel. The reaction functions are estimated using two-stage least squares. Next, a wild cluster bootstrap incorporates parameter uncertainty into the equilibrium strategies. Slovakia requires an asymmetric model, using a counterfactual national rate derived from the pooled rule of its neighbors. Debt feedback provides stabilization in Hungary, Czechia, and Poland (long-run responses 0.46–1.22), but it is absent in Slovakia. Point estimates for long-run responses to expected inflation exceed one (1.50–1.79). However, a unit response cannot be rejected. Significant deviations from equilibrium clustered in 2020 and 2022. In 2020, all three central banks eased policy beyond the equilibrium level. In 2022, Hungary and Poland tightened policy past it. From 2020–2024, the monetary deviation significantly outweighed the fiscal deviation only in Hungary. By contrast, fiscal policy absorbed the larger adjustment in Slovakia.