On Linear Quadratic Approximations
We prove the generality of the methodology proposed in Benigno and Woodford (2006). We show that, even in the presence of a distorted steady state, it is always possible and relatively simple to obtain a purely quadratic approximation to the welfare measure. We also show that, in order to do so, the timeless perspective assumption is crucial.
|Date of creation:||Jul 2006|
|Date of revision:||Jul 2006|
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Web page: https://mpra.ub.uni-muenchen.de
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- Kim, Jinill & Kim, Sunghyun Henry, 2003.
"Spurious welfare reversals in international business cycle models,"
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- Pierpaolo Benigno & Michael Woodford, 2005. "Optimal Taxation in an RBC Model: A Linear-Quadratic Approach," NBER Working Papers 11029, National Bureau of Economic Research, Inc.
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