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Solving for optimal simple rules in rational expectations models

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  • Richard Dennis

Abstract

This paper presents techniques to solve for optimal simple monetary policy rules in rational expectations models, assuming discretion. 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 policy rule allowing rules optimal conditional on a given information set to be easily constructed. The algorithms described are compared to related solution methods, and applied to the model in Clarida, Gali, and Gertler (1999).

Suggested Citation

  • Richard Dennis, 2000. "Solving for optimal simple rules in rational expectations models," Working Paper Series 2000-14, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2000-14
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    More about this item

    Keywords

    Econometric models; Rational expectations (Economic theory);

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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