Partial Adjustment As Optimal Response in a Dynamic Brainard Model
AbstractUncertainty about the precise quantitative effect of policy is endemic in economics. In a classic paper, Brainard showed that in the face of multiplier uncertainty in a static model that optimal policy is relatively conservative. I extend this work to a dynamic model and show in general that gradual adjustment is optimal and in the most simple case derive the classic partial adjustment model as the optimal response to shocks.
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Bibliographic InfoPaper provided by University of Washington, Department of Economics in its series Working Papers with number UWEC-2003-20.
Date of creation: Oct 2003
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WEF Working Papers
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- John Driffill & Zeno Rotondi, 2007. "Inertia in Taylor Rules," Birkbeck Working Papers in Economics and Finance 0720, Birkbeck, Department of Economics, Mathematics & Statistics.
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