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The limits of counter-cyclical monetary policy: an analysis based on optimal control theory and vector autoregressions

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  • Robert B. Litterman

Abstract

Optimal control theory can be combined with the probability structure of a vector autoregression to investigate the tradeoffs available to policymakers. Such an approach obtains results based on a minimal set of assumptions about the economy and the structure of policy actions. This paper takes this approach to analyze the potential effectiveness of countercyclical monetary policy.

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File URL: http://www.minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=554
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File URL: http://www.minneapolisfed.org/research/WP/WP297.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 297.

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Date of creation: 1986
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Handle: RePEc:fip:fedmwp:297

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  1. Robert E. Lucas, Jr. & Thomas J. Sargent, 1979. "After Keynesian macroeconomics," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
  2. Robert B. Litterman, 1984. "Forecasting and policy analysis with Bayesian vector autoregression models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  3. Robert B. Litterman, 1985. "Forecasting with Bayesian vector autoregressions five years of experience," Working Papers 274, Federal Reserve Bank of Minneapolis.
  4. Thomas J. Sargent, 1979. "Estimating vector autoregressions using methods not based on explicit economic theories," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum.
  5. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  6. Robert B. Litterman, 1984. "The costs of intermediate targeting," Working Papers 254, Federal Reserve Bank of Minneapolis.
  7. Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
  8. Sargent, Thomas J, 1984. "Autoregressions, Expectations, and Advice," American Economic Review, American Economic Association, vol. 74(2), pages 408-15, May.
  9. Paul A. Anderson, 1979. "Help for the regional economic forecaster: vector autoregression," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum.
  10. Robert B. Litterman, 1984. "Above-average national growth in 1985 and 1986," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
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