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Which Parameters Drive Approximation Inaccuracies?


  • Sebastian Sienknecht

    () (Department of Economics, Friedrich-Schiller-University Jena)


This paper identifies parameters responsible for welfare reversals when the basic New Keynesian model is approximated. In our setting, a reversal occurs when the Ramsey policy under timeless perspective commitment ceases to be dominant against the Taylor rule after approximating the model. We find that the parameters involved are the degree of persistence in the autoregressive shock process and the labor elasticity of real output.

Suggested Citation

  • Sebastian Sienknecht, 2010. "Which Parameters Drive Approximation Inaccuracies?," Jena Economic Research Papers 2010-093, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2010-093

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    References listed on IDEAS

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    More about this item


    Optimal Monetary policy; Approximations; Welfare Analysis; Timeless Perspective;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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