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Design Limits and Dynamic Policy Analysis

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  • William A. Brock
  • Steven N. Durlauf
  • Giacomo Rondina

Abstract

This paper characterizes the frequency domain properties of feedback control rules in linear systems in order to better understand how different policies affect outcomes frequency by frequency. We are especially concerned in understanding how reductions of variance at some frequencies induce increases in variance at others. Tradeoffs of this type are known in the control literature as design limits. Design limits are important in understanding the full range of effects of macroeconomic stabilization policies. We extend existing results to account for discrete time bivariate systems with rational expectations. Application is made to the evaluation of monetary policy rules.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14357.

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Date of creation: Sep 2008
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Handle: RePEc:nbr:nberwo:14357

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  3. William A. Brock & Steven N. Durlauf & Giacomo Rondina, 2008. "Frequency-Specific Effects of Stabilization Policies," American Economic Review, American Economic Association, vol. 98(2), pages 241-45, May.
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  25. Giannoni, Marc P., 2002. "Does Model Uncertainty Justify Caution? Robust Optimal Monetary Policy In A Forward-Looking Model," Macroeconomic Dynamics, Cambridge University Press, vol. 6(01), pages 111-144, February.
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Citations

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Cited by:
  1. Rhys Bidder, 2013. "Frequency shifting," Working Paper Series 2013-29, Federal Reserve Bank of San Francisco.
  2. Alessi, Lucia & Barigozzi, Matteo & Capasso, Marco, 2008. "A review of nonfundamentalness and identification in structural VAR models," Working Paper Series 0922, European Central Bank.
  3. William A. Brock & Steven N. Durlauf & James M. Nason & Giacomo Rondina, 2007. "Simple versus optimal rules as guides to policy," Working Paper 2007-07, Federal Reserve Bank of Atlanta.
  4. Yu, Xiangrong, 2013. "Measurement error and policy evaluation in the frequency domain," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 307-329.
  5. Pataracchia, Beatrice, 2011. "The spectral representation of Markov switching ARMA models," Economics Letters, Elsevier, vol. 112(1), pages 11-15, July.
  6. Beatrice Pataracchia, 2008. "Design Limits in Regime-Switching Cases," Department of Economics University of Siena 529, Department of Economics, University of Siena.
  7. Xiangrong Yu, 2013. "Measurement Error and Policy Evaluation in the Frequency Domain," Working Papers 172013, Hong Kong Institute for Monetary Research.

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