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Indicator Variables for Optimal Policy

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Listed author(s):
  • Svensson, Lars

    ()

    (Institute for International Economic Studies, Stockholm University)

  • Woodford, Michael

    (Princeton University and NBER)

Abstract

The optimal weights on indicators in models with partial information about the state of the economy and forward-looking variables are derived and interpreted, both for equilibria under discretion and under commitment. An example of optimal monetary policy with a partially observable potential output and a forward-looking indicator is examined. The optimal response to the optimal estimate of potential output displays certainty-equivalence, whereas the optimal response to the imperfect observation of output depends on the noise in this observation.

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Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 688.

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Length: 53 pages
Date of creation: 01 Sep 2000
Handle: RePEc:hhs:iiessp:0688
Contact details of provider: Postal:
Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden

Phone: +46-8-162000
Fax: +46-8-161443
Web page: http://www.iies.su.se/

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Keywords: Partial information; Kalman filter; monetary policy; discretion and commitment;

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Find related papers by JEL classification:
  • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
  • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
  • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
  • 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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