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Solution of RE Models with Anticipated Shocks and Optimal Policy

  • Wohltmann, Hans-Werner
  • Winkler, Roland C.

The purpose of this paper is to solve linear dynamic rational expectations models with anticipated shocks by using the generalized Schur decomposition method. We also determine the optimal unrestricted and restricted policy responses to temporary as well as permanent shocks which both are anticipated by the public. In particular, our method is useful for the analysis of optimal monetary policy in New Keynesian dynamic general equilibrium models.

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File URL: http://econstor.eu/bitstream/10419/22048/1/EWP-2007-32.pdf
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Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2007,32.

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Date of creation: 2007
Date of revision:
Handle: RePEc:zbw:cauewp:6877
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Web page: http://www.wiso.uni-kiel.de/econ/

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  1. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
  2. Backus, David & Driffill, John, 1986. "The Consistency of Optimal Policy in Stochastic Rational Expectations Models," CEPR Discussion Papers 124, C.E.P.R. Discussion Papers.
  3. Rudebusch, G.D. & Svensson, L.E.O., 1998. "Policy Rules for Inflation Targeting," Papers 637, Stockholm - International Economic Studies.
  4. Soderlind, Paul, 1999. "Solution and estimation of RE macromodels with optimal policy," European Economic Review, Elsevier, vol. 43(4-6), pages 813-823, April.
  5. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
  6. repec:cup:cbooks:9780521104609 is not listed on IDEAS
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