A guided tour of the world of rational expectations models and optimal policies
AbstractThis working paper after quickly reviewing the different types of existing macro models presents some basic tools that have proved useful for analysing monetary policy in recent years. Through the use of a simple quantitative forward-looking model of output, inflation and interest rate determination, the paper tries to familiarise the reader with some of the techniques used in research on optimal policy, including rational expectations theory, timeconsistency analysis, the Lucas critique and computer simulation techniques. The explanation proceeds gradually. First, a single linear difference equation is used to explain how solutions to models with forward-looking expectations can be obtained. Then it deals with methods used to solve more general models for optimal policies. Finally, the potential usefulness of these techniques is explained through a series of applications to monetary policy.
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Bibliographic InfoPaper provided by National Bank of Belgium in its series Working Paper Research with number 16.
Length: 50 pages
Date of creation: Jun 2001
Date of revision:
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Other versions of this item:
- Jeanfils, P., 2001. "A Guided Tour of the World of Rational Expectations Models and Optimal Policies," Papers 16, Warwick - Development Economics Research Centre.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
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- Siok Kun, Sek, 2009. "The impacts of economic structures on the performance of simple policy rules in a small open economy," MPRA Paper 25065, University Library of Munich, Germany.
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