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Optimal Control and Filtering in Linear Forward-looking Economies: A Toolkit

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Author Info
Gerali, Andrea
Lippi, Francesco

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Abstract

We provide algorithms to solve a linear-quadratic optimal control problem with commitment. By extending to the case of imperfect information a procedure outlined in Ljungqvist and Sargent (2002), we make the results of Svensson and Woodford (2000) easy to implement. We provide a Mat-lab package that solves this class of models and analyses their properties using simulations, impulse response functions and other techniques, with both commitment and discretion. A monetary policy application, based on the “new-Keynesian” model of Clarida, Galí and Gertler (1999), is used to illustrate how the toolkit can be used.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3706.

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Date of creation: Jan 2003
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Handle: RePEc:cpr:ceprdp:3706

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Related research
Keywords: commitment; filtering; optimal control;

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Find related papers by JEL classification:
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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References listed on IDEAS
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. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Woodford, M., 1999. "Optimal Monetary Policy Inertia.," Papers 666, Stockholm - International Economic Studies.
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  3. Lars E.O. Svensson & Michael Wooford, 2000. "Indicator variables for optimal policy," Working Paper Series 12, European Central Bank. [Downloadable!]
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  4. Ehrmann, M. & Smets, F., 2001. "Uncertain Potential Output: Implications for Monetary Policy," Papers 59, Quebec a Montreal - Recherche en gestion.
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  5. Athanasios Orphanides, 2000. "The quest for prosperity without inflation," Working Paper Series 15, European Central Bank. [Downloadable!]
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  6. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series 1998-03, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  7. Lars E. O. Svensson & Michael Woodford, 2003. "Optimal Policy with Partial Information in a Forward-Looking Model: Certainty-Equivalence Redux," NBER Working Papers 9430, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Currie, David & Levine, Paul, 1986. "Time inconsistency and optimal policies in deterministic and stochastic worlds," Journal of Economic Dynamics and Control, Elsevier, vol. 10(1-2), pages 191-199, June. [Downloadable!] (restricted)
  9. Backus, David & Driffill, John, 1986. "The Consistency of Optimal Policy in Stochastic Rational Expectations Models," CEPR Discussion Papers 124, C.E.P.R. Discussion Papers. [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. Francesco Lippi & Stefano Neri, 2004. "Information variables for monetary policy in a small structural model of the euro area," Temi di discussione (Economic working papers) 511, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
  2. Eugenio Gaiotti & Alessandro Secchi, 2004. "Is there a cost channel of monetary policy transmission? An investigation into the pricing behavior of 2,000 firms," Macroeconomics 0412010, EconWPA. [Downloadable!]
    Other versions:
  3. Pawel Kowal, 2005. "Solving Models with Imperfect and Asymmetric Information," Macroeconomics 0505025, EconWPA. [Downloadable!]
  4. Piergallini Alessandro, 2004. "Real Balance Effects, Determinacy and Optimal Monetary Policy," Departmental Working Papers 200, Tor Vergata University, CEIS. [Downloadable!]
  5. Carl Walsh, 2004. "Implications of a Changing Economic Structure for the Strategy of Monetary Policy," Santa Cruz Center for International Economics, Working Paper Series 1023, Center for International Economics, UC Santa Cruz. [Downloadable!]
    Other versions:
  6. Kilponen, Juha, 2004. "Robust expectations and uncertain models – A robust control approach with application to the New Keynesian economy," Research Discussion Papers 5/2004, Bank of Finland. [Downloadable!]
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  7. Richard Mash, 2003. "A Note on Simple MSV Solution Methods for Rational Expectations Models of Monetary Policy," Economics Series Working Papers 173, University of Oxford, Department of Economics. [Downloadable!]
  8. Lavan Mahadeva & Alex Muscatelli, 2005. "National Accounts Revisions and Output Gap Estimates in a Model of Monetary Policy with Data Uncertainty," Discussion Papers 14, Monetary Policy Committee Unit, Bank of England. [Downloadable!]
  9. Simona Delle Chiaie, 2007. "Monetary Policy and Potential Output Uncertainty: A Quantitative Assessment," CEIS Research Paper 94, Tor Vergata University, CEIS. [Downloadable!]
  10. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2006. "Monetary Policy Under Inflation Targeting: An Introduction," Working Papers Central Bank of Chile 396, Central Bank of Chile. [Downloadable!]
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  11. Cukierman, Alex & Lippi, Francesco, 2003. "Endogenous Monetary Policy with Unobserved Potential Output," CEPR Discussion Papers 3763, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. Eugenio Gaiotti, 2004. "Pitfalls of monetary policy under incomplete information: imprecise indicators and real indeterminacy," Temi di discussione (Economic working papers) 488, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
  13. Kilponen , Juha & Milne, Alistair, 2007. "The lending channel under optimal choice of monetary policy," Research Discussion Papers 33/2007, Bank of Finland. [Downloadable!]
  14. Francesco Lippi & Stefano Neri, 2004. "Information variables for monetary policy in a small structural model," DNB Staff Reports (discontinued) 120, Netherlands Central Bank. [Downloadable!]
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