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Optimal Policy In Rational Expectations Models: New Solution Algorithms

  • DENNIS, RICHARD

This paper develops algorithms that solve for optimal discretionary and optimal pre-commitment policies in rational-expectations models. The techniques developed are simpler to apply than existing methods; they do not require identifying and separating predetermined variables from jump variables, and they eliminate many of the mathematical preliminaries that are required to implement existing methods. The techniques developed are applied to examples to assess the benefits of pre-commitment over discretion.

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Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 11 (2007)
Issue (Month): 01 (February)
Pages: 31-55

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Handle: RePEc:cup:macdyn:v:11:y:2007:i:01:p:31-55_05
Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
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  12. Coenen Günter & Orphanides Athanasios & Wieland Volker, 2004. "Price Stability and Monetary Policy Effectiveness when Nominal Interest Rates are Bounded at Zero," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-25, February.
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