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Ordering Policy Rules with an Unconditional Welfare Measure


  • Damjanovic, Tatiana
  • Damjanovic, Vladislav
  • Nolan, Charles


The unconditional expectation of social welfare is often used to assess alternative macroeconomic policy rules in applied quantitative research. It is shown that it is generally possible to derive a linear - quadratic problem that approximates the exact non-linear problem where the unconditional expectation of the objective is maximised and the steady-state is distorted. Thus, the measure of pol icy performance is a linear combinat ion of second moments of economic variables which is relatively easy to compute numerically, and can be used to rank alternative policy rules. The approach is applied to a simple Calvo-type model under various monetary policy rules.

Suggested Citation

  • Damjanovic, Tatiana & Damjanovic, Vladislav & Nolan, Charles, 2011. "Ordering Policy Rules with an Unconditional Welfare Measure," SIRE Discussion Papers 2011-16, Scottish Institute for Research in Economics (SIRE).
  • Handle: RePEc:edn:sirdps:257

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    References listed on IDEAS

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    Cited by:

    1. Gersbach, Hans & Hahn, Volker & Liu, Yulin, 2017. "Macroprudential Policy in the New Keynesian World," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168185, Verein für Socialpolitik / German Economic Association.
    2. Sarunas Girdenas, 2016. "A Note on Simple Monetary Policy Rules with Labour Market and Financial Frictions," Discussion Papers 1601, Exeter University, Department of Economics.
    3. Tatiana Damjanovic & Vladislav Damjanovic & Charles Nolan, 2017. "Unconditionally Optimal Ramsey policy," CEGAP Working Papers 2017_01, Durham University Business School.

    More about this item


    Linear-quadratic approximation; unconditional expectations; optimal monetary policy; ranking simple policy rules;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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