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Solving for optimal simple rules in rational expectations models

Listed author(s):
  • Dennis, Richard

This paper presents techniques to solve for optimal simple monetary policy rules in rational expectations models. Both pre-commitment and discretionary solutions are considered. The techniques described are notable for the flexibility they provide over the structure of the policy rule being solved for. Specifically, not all state variables need enter the rule. This allows rules optimal, conditional on a specified information set or structure, to be easily constructed. The algorithms are illustrated through application to the models in Clarida, Gali, and Gertler (1999) and Rudebusch (2000).

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 28 (2004)
Issue (Month): 8 (June)
Pages: 1635-1660

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Handle: RePEc:eee:dyncon:v:28:y:2004:i:8:p:1635-1660
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Richard Dennis & Ulf Soderstrom, 2002. "How important is precommitment for monetary policy?," Working Paper Series 2002-10, Federal Reserve Bank of San Francisco.
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