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Ordering policy rules with an unconditional welfare measure

  • Tatiana Damjanovic
  • Vladislav Damjanovic
  • Charles Nolan

The unconditional expectation of social welfare is often used to assess alternative macroeconomic policy rules in applied quantative research. It is shown that it is generally possible to derive a linear-quadratic problem that approximates the exact non-linear porblem where the unconditional expectation of the objective is maximised and the steady- state is distorted. Thus, the measure of policy performance is a linear combination 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.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2011_15.

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Date of creation: Mar 2011
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Handle: RePEc:gla:glaewp:2011_15
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  17. Damjanovic, Tatiana & Damjanovic, Vladislav & Nolan, Charles, 2008. "Unconditionally optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 491-500, April.
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