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Partial Adjustment As Optimal Response in a Dynamic Brainard Model

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  • Richard Startz

Abstract

Uncertainty 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.

Suggested Citation

  • Richard Startz, 2003. "Partial Adjustment As Optimal Response in a Dynamic Brainard Model," Working Papers UWEC-2003-20, University of Washington, Department of Economics.
  • Handle: RePEc:udb:wpaper:uwec-2003-20
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    File URL: http://www.econ.washington.edu/user/startz/Working_Papers/PartialAdjustment.pdf
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    Cited by:

    1. 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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