This paper analyzes the macrodynamics by which the government controls government spending and the central bank controls long-term interest rates under the New-Keynesian economy. This study focuses on the sticky-price model, in which firms staggeringly set the prices of the goods over time, and sticky-information model, in which firms staggeringly obtain information over time, by using linear quadratic differential games. I show the interactions between the strategies of two policy authorities and the implications of these strategies under their respective models.
JEL classification: C73, D43, E12, E63