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Optimal policy in rational-expectations models: new solution algorithms

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  • Richard Dennis

Abstract

This paper develops algorithms that solve for optimal discretionary and optimal pre-commitment policies in rational-expectations models. The techniques developed are simpler to apply than existing methods; they do not require identifying and separating predetermined variables from jump variables, and they eliminate many of the mathematical preliminaries that are required to implement existing methods. The techniques developed are applied to examples to assess the benefits of pre-commitment over discretion.

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Bibliographic Info

Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2001-09.

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Date of creation: 2001
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Handle: RePEc:fip:fedfwp:2001-09

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Keywords: Monetary policy ; Rational expectations (Economic theory);

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  8. Richard Dennis, 2001. "Solving for Optimal Simple Rules in Rational Expectations Models," Computing in Economics and Finance 2001 30, Society for Computational Economics.
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  19. Hans M. Amman & David A. Kendrick, 1997. "Linear Quadratic Optimization for Models with Rational Expectations," CARE Working Papers 9708, The University of Texas at Austin, Center for Applied Research in Economics.
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