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The Limits of Counter-Cyclical Monetary Policy: an Analysis Based on Optimal Control Theory and Vector Autoregressions

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  • Robert LITTERMAN

Abstract

Optimal control theory can be combined with the probability structure of a vector autoregression to investigate the tradeoffs available to policy-makers. Such an approach obtains results based on a minimal set of assumptions about the economy and the structure of policy actions. This paper takes this approach to analyze the potential effectiveness of countercyclical monetary policy.

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File URL: http://www.jstor.org/stable/20075651
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Bibliographic Info

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (1987)
Issue (Month): 6-7 ()
Pages: 125-160

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Handle: RePEc:adr:anecst:y:1987:i:6-7:p:06

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  1. Paul A. Anderson, 1979. "Help for the regional economic forecaster: vector autoregression," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum.
  2. Robert B. Litterman, 1984. "The costs of intermediate targeting," Working Papers 254, Federal Reserve Bank of Minneapolis.
  3. Robert B. Litterman, 1984. "Forecasting and policy analysis with Bayesian vector autoregression models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  4. Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 25-38, January.
  5. Thomas J. Sargent, 1979. "Estimating vector autoregressions using methods not based on explicit economic theories," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum.
  6. Robert B. Litterman, 1984. "Above-average national growth in 1985 and 1986," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  7. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  8. Sargent, Thomas J, 1984. "Autoregressions, Expectations, and Advice," American Economic Review, American Economic Association, vol. 74(2), pages 408-15, May.
  9. Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
  10. Robert E. Lucas, Jr. & Thomas J. Sargent, 1979. "After Keynesian macroeconomics," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
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Cited by:
  1. Carlos J. García & Pablo González M. & Antonio Moncado S., 2013. "Macroeconomic Forecasting in Chile: a Structural Bayesian Approach," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 16(1), pages 24-63, April.

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