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A guided tour of the world of rational expectations models and optimal policies

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  • Philippe Jeanfils

    (National Bank of Belgium, Research Department)

Abstract

This working paper after quickly reviewing the different types of existing macro models presents some basic tools that have proved useful for analysing monetary policy in recent years. Through the use of a simple quantitative forward-looking model of output, inflation and interest rate determination, the paper tries to familiarise the reader with some of the techniques used in research on optimal policy, including rational expectations theory, timeconsistency analysis, the Lucas critique and computer simulation techniques. The explanation proceeds gradually. First, a single linear difference equation is used to explain how solutions to models with forward-looking expectations can be obtained. Then it deals with methods used to solve more general models for optimal policies. Finally, the potential usefulness of these techniques is explained through a series of applications to monetary policy.

Suggested Citation

  • Philippe Jeanfils, 2001. "A guided tour of the world of rational expectations models and optimal policies," Working Paper Research 16, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:2001-06
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    Cited by:

    1. Patrick Bisciari & Alain Durré & Alain Nyssens, 2003. "Stock market valuation in the United States," Working Paper Document 41, National Bank of Belgium.
    2. Siok Kun, Sek, 2009. "The impacts of economic structures on the performance of simple policy rules in a small open economy," MPRA Paper 25065, University Library of Munich, Germany.
    3. Geert Langenus, 2006. "Fiscal sustainability indicators and policy design in the face of ageing," Working Paper Research 102, National Bank of Belgium.
    4. Luc Aucremann & David Cornille, 2001. "Attractive prices and euro-rounding effects on inflation," Working Paper Document 17, National Bank of Belgium.

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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