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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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  • Robert Litterman, 1987. "The Limits of Counter-Cyclical Monetary Policy: an Analysis Based on Optimal Control Theory and Vector Autoregressions," Annals of Economics and Statistics, GENES, issue 6-7, pages 125-160.
    • Handle: RePEc:adr:anecst:y:1987:i:6-7:p:125-160
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    References listed on IDEAS

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    1. Robert E. Lucas & Thomas J. Sargent, 1979. "After Keynesian macroeconomics," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 3(Spr).
    2. Paul A. Anderson, 1979. "Help for the regional economic forecaster: vector autoregression," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 3(Sum).
    3. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    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. Robert B. Litterman, 1984. "Above-average national growth in 1985 and 1986," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 8(Fall).
    6. Thomas J. Sargent, 1979. "Estimating vector autoregressions using methods not based on explicit economic theories," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 3(Sum).
    7. Robert B. Litterman, 1984. "Forecasting and policy analysis with Bayesian vector autoregression models," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 8(Fall).
    8. Litterman, Robert, 1986. "Forecasting with Bayesian vector autoregressions -- Five years of experience : Robert B. Litterman, Journal of Business and Economic Statistics 4 (1986) 25-38," International Journal of Forecasting, Elsevier, vol. 2(4), pages 497-498.
    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. Sargent, Thomas J, 1984. "Autoregressions, Expectations, and Advice," American Economic Review, American Economic Association, vol. 74(2), pages 408-415, May.
    11. Robert B. Litterman, 1984. "The costs of intermediate targeting," Working Papers 254, Federal Reserve Bank of Minneapolis.
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    Cited by:

    1. Enrique M. Quilis(1), "undated". "Modelos Bvar: Especificación, Estimación E Inferencia," Working Papers 8-02 Classification-JEL :, Instituto de Estudios Fiscales.
    2. Robert Marti, 1995. "Spécification des préférences implicites en matière de politique économique française, 1981-1991," Économie et Prévision, Programme National Persée, vol. 119(3), pages 1-11.

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