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Anticipated Alternative Instrument-Rate Paths in Policy Simulations

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  • Stefan Laséen
  • Lars E.O. Svensson

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14902.

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Date of creation: Apr 2009
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Publication status: published as “Anticipated Alternative Instrument-Rate Paths in Policy Simulations” (with Stefan Laséen, Sveriges Riksbank), revised May 2011. International Journal of Central Banking 7(3) (2011) 1-35
Handle: RePEc:nbr:nberwo:14902

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  1. Eric M. Leeper & Tao Zha, 2002. "Modest policy interventions," Working Paper, Federal Reserve Bank of Atlanta 2002-19, Federal Reserve Bank of Atlanta.
  2. Malin Adolfson & Stefan Laséen & Jesper Lindé & Lars E.O. Svensson, 2011. "Optimal Monetary Policy in an Operational Medium‐Sized DSGE Model," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 43(7), pages 1287-1331, October.
  3. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(2), pages 241-54, April.
  4. Linde, Jesper, 2005. "Estimating New-Keynesian Phillips curves: A full information maximum likelihood approach," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(6), pages 1135-1149, September.
  5. Albert Marcet & Ramon Marimon, 2011. "Recursive Contracts," Working Papers 552, Barcelona Graduate School of Economics.
  6. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, Elsevier, vol. 43(3), pages 607-654, June.
  7. Jordi Gali, 2008. "Are Central Banks' Projections Meaningful?," 2008 Meeting Papers 174, Society for Economic Dynamics.
  8. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2005. "Bayesian Estimation of an Open Economy DSGE Model with Incomplete Pass-Through," Working Paper Series 179, Sveriges Riksbank (Central Bank of Sweden).
  9. Svensson, Lars E.O. & Rudebusch , Glenn, 1998. "Policy Rules for Inflation Targeting," Seminar Papers, Stockholm University, Institute for International Economic Studies 637, Stockholm University, Institute for International Economic Studies.
  10. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
  11. Söderlind, Paul, 1998. "Solution and Estimation of RE Macromodels with Optimal Policy," Working Paper Series in Economics and Finance 256, Stockholm School of Economics.
  12. Svensson, Lars O, 2005. "Monetary Policy with Judgment: Forecast Targeting," MPRA Paper 819, University Library of Munich, Germany.
  13. Gary S. Anderson, 2010. "A reliable and computationally efficient algorithm for imposing the saddle point property in dynamic models," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2010-13, Board of Governors of the Federal Reserve System (U.S.).
  14. Boucekkine, Raouf, 1995. "An alternative methodology for solving nonlinear forward-looking models," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 19(4), pages 711-734, May.
  15. Gary S. Anderson, 2000. "A Systematic Comparison Of Alternative Linear Rational Expectation Model Solution Techniques," Computing in Economics and Finance 2000 142, Society for Computational Economics.
  16. Malin Adolfson & Stefan Laseen & Jesper Lindé & Mattias Villani, 2005. "An estimated New Keynesian small open economy model," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  17. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 24(10), pages 1405-1423, September.
  18. Joseph E. Gagnon & Dale W. Henderson, 1988. "Nominal interest rate pegging under alternative expectations hypotheses," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 336, Board of Governors of the Federal Reserve System (U.S.).
  19. Juillard, Michel, 1996. "Dynare : a program for the resolution and simulation of dynamic models with forward variables through the use of a relaxation algorithm," CEPREMAP Working Papers (Couverture Orange) 9602, CEPREMAP.
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Cited by:
  1. Yasuo Hirose & Atsushi Inoue, 2013. "Zero Lower Bound and Parameter Bias in an Estimated DSGE Model," UTokyo Price Project Working Paper Series 012, University of Tokyo, Graduate School of Economics.
  2. Akito Matsumoto & Pietro Cova & Massimiliano Pisani & Alessandro Rebucci, 2011. "News Shocks and Asset Price Volatility in General Equilibrium," IDB Publications 37398, Inter-American Development Bank.

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