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Anticipated Alternative Instrument-Rate Paths in Policy Simulations

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  • Laséen, Stefan
  • Svensson, Lars E O

Abstract

This paper specifies a new convenient algorithm to construct policy projections conditional on alternative anticipated policy-rate paths in linearized dynamic stochastic general equilibrium (DSGE) models, such as Ramses, the Riksbank's main DSGE model. Such projections with anticipated policy-rate paths correspond to situations where the central bank transparently announces that it, conditional on current information, plans to implement a particular policy-rate path and where this announced plan for the policy rate is believed and then anticipated by the private sector. The main idea of the algorithm is to include among the predetermined variables (the 'state' of the economy) the vector of nonzero means of future shocks to a given policy rule that is required to satisfy the given anticipated policy-rate path.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8176.

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Date of creation: Jan 2011
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Handle: RePEc:cpr:ceprdp:8176

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Keywords: instrument rules; Optimal monetary policy; optimal policy projections; policy rules;

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References

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Cited by:
  1. Yasuo Hirose & Atsushi Inoue, 2013. "Zero Lower Bound and Parameter Bias in an Estimated DSGE Model," TERG Discussion Papers 308, Graduate School of Economics and Management, Tohoku University.
  2. Matsumoto, Akito & Cova, Pietro & Pisani, Massimiliano & Rebucci, Alessandro, 2011. "News shocks and asset price volatility in general equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 2132-2149.

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