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Design limits and dynamic policy analysis

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  • Brock, William A.
  • Durlauf, Steven N.
  • Rondina, Giacomo

Abstract

This paper characterizes the frequency domain properties of feedback control rules in linear systems in order to better understand how different policies affect outcomes frequency by frequency. We are especially concerned in understanding how reductions of variance at some frequencies induce increases in variance at others. Tradeoffs of this type are known in the control literature as design limits. Design limits are important in understanding the full range of effects of macroeconomic stabilization policies. We extend existing results to account for discrete time bivariate systems with rational expectations. Application is made to the evaluation of monetary policy rules.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 12 ()
Pages: 2710-2728

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:12:p:2710-2728

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Design limits; Stabilization policy; Frequency domain; Monetary policy rules;

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References

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Citations

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Cited by:
  1. Yu, Xiangrong, 2013. "Measurement error and policy evaluation in the frequency domain," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 307-329.
  2. Rhys Bidder, 2013. "Frequency shifting," Working Paper Series 2013-29, Federal Reserve Bank of San Francisco.
  3. Alessi, Lucia & Barigozzi, Matteo & Capasso, Marco, 2008. "A review of nonfundamentalness and identification in structural VAR models," Working Paper Series 0922, European Central Bank.
  4. Brock, William A. & Durlauf, Steven N. & Nason, James M. & Rondina, Giacomo, 2007. "Simple versus optimal rules as guides to policy," Journal of Monetary Economics, Elsevier, vol. 54(5), pages 1372-1396, July.
  5. Pataracchia, Beatrice, 2011. "The spectral representation of Markov switching ARMA models," Economics Letters, Elsevier, vol. 112(1), pages 11-15, July.
  6. Xiangrong Yu, 2013. "Measurement Error and Policy Evaluation in the Frequency Domain," Working Papers 172013, Hong Kong Institute for Monetary Research.
  7. Beatrice Pataracchia, 2008. "Design Limits in Regime-Switching Cases," Department of Economics University of Siena 529, Department of Economics, University of Siena.

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