Should Macroeconomic Policy Makers Consider Parameter Covariances?
Many macroeconomic policy exercises consider the mean values of parameter estimates but do not use the variances and covariances. One can argue that the uncertainty of these parameter estimates is sufficiently small that it can safely be ignored. Or one can take the position that this kind of uncertainty cannot be avoided no matter what one does. Thus it is just as well to ignore it while making policy decisions. In this paper we address both of these positions in the presence of learning and find that they are unconvincing. To the contrary, we find evidence that the potential damage from ignoring the variances and covariances of the parameter estimates is substantial and that taking them into account can improve matters. Citation Copyright 1999 by Kluwer Academic Publishers.
(This abstract was borrowed from another version of this item.)
|Date of creation:||Feb 1997|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +1 (512) 471-3211
Fax: +1 (512) 471-3510
Web page: http://www.utexas.edu/cola/depts/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Caplin, Andrew & Leahy, John, 1996. "Monetary Policy as a Process of Search," American Economic Review, American Economic Association, vol. 86(4), pages 689-702, September.
- Pohjola, Matti T., 1981. "Uncertainty and the vigour of policy Some implications of quadratic preferences," Journal of Economic Dynamics and Control, Elsevier, vol. 3(1), pages 299-305, November.
- Ray C. Fair & E. Philip Howrey, 1995.
"Evaluating Alternative Monetary Policy Rules,"
Cowles Foundation Discussion Papers
1091, Cowles Foundation for Research in Economics, Yale University.
- Shupp, Franklin R., 1976. "Uncertainty and optimal stabilization policy," Journal of Public Economics, Elsevier, vol. 6(3), pages 243-253, October.
- Turnovsky, Stephen J, 1975. "Optimal Choice of Monetary Instrument in a Linear Economic Model with Stochastic Coefficients," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 7(1), pages 51-80, February.
- Kendrick, David, 1982. "Caution and probing in a macroeconomic model," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 149-170, November.
- Craine, Roger, 1979. "Optimal monetary policy with uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 1(1), pages 59-83, February.
- Amman, Hans M & Kendrick, David A, 1995. "Nonconvexities in Stochastic Control Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 455-75, May.
- Amman, Hans M. & Kendrick, David A., 1994. "Active learning Monte Carlo results," Journal of Economic Dynamics and Control, Elsevier, vol. 18(1), pages 119-124, January.
- Chow, Gregory C, 1973. "Effect of Uncertainty on Optimal Control Policies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 632-45, October.
- Roger Craine & Arthur Havenner & Peter Tinsley, 1976. "Optimal Macroeconomic Control Policies," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 2, pages 191-203 National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:tex:carewp:9701. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Thomas)
If references are entirely missing, you can add them using this form.