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Policy Evaluation and Design for Continuous Time Linear Rational Expectations Models: Some Recent Developments

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Author Info
Buiter, Willem H

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Abstract

This paper surveys some recent developments in policy evaluation and design in continuous time linear rational expectations models. Much recent work in macroeconomics and open economy macroeconomics fits into this category. First the continuous time analogue of the discrete time solution method of Blanchard and Kahn is reviewed. Some problems associated with this solution method are then discussed, including non-uniqueness and zero roots. Optimal (but in general time-inconsistent) and time-consistent (but in general suboptimal) solutions are derived to the general linear-quadratic optimal control problem, based on work by Calco, Driffill, Miller and Salmon and the author. A numerical example is solved, involving optimal and time-consistent anti-inflationary policy design in a contract model.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 15.

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Date of creation: May 1984
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Handle: RePEc:cpr:ceprdp:15

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Keywords: Continuous Time Expecting Rational Expectations Models; Rational Expectations;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Willem H. Buiter & Marcus Miller, 1983. "Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation: Some Further Results," NBER Chapters, in: Exchange Rates and International Macroeconomics, pages 317-368 National Bureau of Economic Research, Inc. [Downloadable!]
  2. Pearlman, Joseph & Currie, David & Levine, Paul, 1986. "Rational expectations models with partial information," Economic Modelling, Elsevier, vol. 3(2), pages 90-105, April. [Downloadable!] (restricted)
  3. McCallum, Bennett T., 1983. "On non-uniqueness in rational expectations models : An attempt at perspective," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 139-168. [Downloadable!] (restricted)
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  4. Buiter, Willem H. & Miller, Marcus, 1982. "Real exchange rate overshooting and the output cost of bringing down inflation," European Economic Review, Elsevier, vol. 18(2), pages 85-123. [Downloadable!] (restricted)
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  5. Willem H. Buiter, 1980. "The Role of Economic Policy After the New Classical Macroeconomics," NBER Technical Working Papers 0006, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Miller, Marcus & Salmon, Mark, 1985. "Dynamic Games and the Time Inconsistency of Optimal Policy in Open Economies," Economic Journal, Royal Economic Society, vol. 95(380a), pages 124-37, Supplemen. [Downloadable!] (restricted)
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  7. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-28, November. [Downloadable!] (restricted)
  8. Olivier J. Blanchard, 1983. "Methods of Solution and Simulation for Dynamic Rational Expectations Models," NBER Technical Working Papers 0028, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July. [Downloadable!] (restricted)
  10. Jennifer F. Reinganum & Nancy L. Stokey, 1981. "The Period of Commitment in Dynamic Games," Discussion Papers 508R, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  11. Bruno, Michael & Sachs, Jeffrey, 1982. "Input Price Shocks and the Slowdown in Economic Growth: The Case of U.K. Manufacturing," Review of Economic Studies, Blackwell Publishing, vol. 49(5), pages 679-705, Special I. [Downloadable!] (restricted)
  12. Willem H. Buiter & Mark Gersovitz, 1981. "Issues in Controllability and the Theory of Economic Policy," NBER Technical Working Papers 0002, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Michael Bruno & Jeffrey Sachs, 1982. "Input Price Shocks and the Slowdown in Economic Growth: The Case of U.K.Manufacturing," NBER Working Papers 0851, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Willem H. Buiter, 1983. "Optimal and Time-Consistent Polices in Continuous Time Rational Expectations Models," NBER Technical Working Papers 0029, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Willem H. Buiter & Marcus H. Miller, 1986. "Costs and Benefits of an Anti-Inflationary Policy: Questions and Issues," NBER Working Papers 1252, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Willem H. Buiter, 1981. "A Note on the Solution of A Two-Point Boundary Value Problem Frequently Encountered in Rational Expectations Models," NBER Technical Working Papers 0012, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Willem H. Buiter, 2004. "The Elusive Welfare Economics of Price Stability as a Monetary Policy Objective: Should New Keynesian Central Bankers Pursue Price Stability?," NBER Working Papers 10848, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Alberto Petrucci, 2004. "Asset Accumulation, Fertility Choice and Nondegenerate Dynamics in a Small Open Economy," Working Papers 2004.121, Fondazione Eni Enrico Mattei. [Downloadable!]
  3. Partha Sen & Stephen J. Turnovsky, 1991. "Investment Tax Credit in an Open Economy," NBER Working Papers 3298, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Willem H. Buiter, 2006. "The elusive welfare economics of price stability as a monetary policy objective - why New Keynesian central bankers should validate core inflation," Working Paper Series 609, European Central Bank. [Downloadable!]
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