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The limits of counter-cyclical monetary policy: an analysis based on optimal control theory and vector autoregressions

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  • Robert B. Litterman

Abstract

Optimal control theory can be combined with the probability structure of a vector autoregression to investigate the tradeoffs available to policymakers. Such an approach obtains results based on a minimal set of assumptions about the economy and the structure of policy actions. This paper takes this approach to analyze the potential effectiveness of countercyclical monetary policy.

Suggested Citation

  • Robert B. Litterman, 1986. "The limits of counter-cyclical monetary policy: an analysis based on optimal control theory and vector autoregressions," Working Papers 297, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmwp:297
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    File URL: http://www.minneapolisfed.org/research/WP/WP297.pdf
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    References listed on IDEAS

    as
    1. Robert B. Litterman, 1984. "Above-average national growth in 1985 and 1986," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
    2. Robert B. Litterman, 1984. "Forecasting and policy analysis with Bayesian vector autoregression models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
    3. Robert B. Litterman, 1984. "The costs of intermediate targeting," Working Papers 254, Federal Reserve Bank of Minneapolis.
    4. Robert E. Lucas, Jr. & Thomas J. Sargent, 1979. "After Keynesian macroeconomics," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
    5. Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
    6. Sargent, Thomas J, 1984. "Autoregressions, Expectations, and Advice," American Economic Review, American Economic Association, vol. 74(2), pages 408-415, May.
    7. Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 25-38, January.
    8. Paul A. Anderson, 1979. "Help for the regional economic forecaster: vector autoregression," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum.
    9. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    10. Thomas J. Sargent, 1979. "Estimating vector autoregressions using methods not based on explicit economic theories," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum.
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    Cited by:

    1. Enrique M. Quilis(1), "undated". "Modelos Bvar: Especificación, Estimación E Inferencia," Working Papers 8-02 Classification-JEL :, Instituto de Estudios Fiscales.

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