Solving for Optimal Simple Rules in Rational-Expectations Models

This paper presents techniques to solve for optimal simple monetary policy rules in rational expectations models, assuming discretion. The techniques described are notable for the flexibility they provide over the structure of the policy rule being solved for. Specifically, not all state variables need enter the policy rule allowing rules optimal conditional on a given information set to be easily constructed. The algorithms described are compared to related solution methods, and applied to the model in Clarida, Gali, and Gertler (1999).

[1]  C. Sims.  Solving Linear Rational Expectations Models , 2002 .

[2]  Nicoletta Batini,et al.  Monetary Policy Rules for an Open Economy , 2001 .

[3]  Volker Wieland,et al.  The Performance of Forecast-Based Monetary Policy Rules Under Model Uncertainty , 2001, SSRN Electronic Journal.

[4]  A. Sutherland.  Inflation Targeting in a Small Open Economy , 2001 .

[5]  Richard Dennis.  Optimal Simple Targeting Rules for Small Open Economies , 2000 .

[6]  Ngo Van Long,et al.  Differential Games in Economics and Management Science: List of tables , 2000 .

[7]  R. King,et al.  Optimal Monetary Policy , 2000 .

[8]  Paul Klein.  Using the generalized Schur form to solve a multivariate linear rational expectations model , 2000 .

[9]  F. Smets.  What Horizon for Price Stability , 2000, SSRN Electronic Journal.

[10]  Edward Nelson,et al.  Optimal Horizons for Inflation Targeting , 2000 .

[11]  Glenn D. Rudebusch.  Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty , 2000, SSRN Electronic Journal.

[12]  Henrik Jensen,et al.  Targeting Nominal Income Growth or Inflation? , 1999 .

[13]  Thomas F. Cooley,et al.  A Neoclassical Model of The Phillips Curve Relation , 1999 .

[14]  Michael Woodford,et al.  Optimal Monetary Policy Inertia , 1999 .

[15]  J. Galí,et al.  The Science of Monetary Policy: A New Keynesian Perspective , 1999 .

[16]  P. Söderlind.  Solution and Estimation of RE Macromodels with Optimal Policy , 1998 .

[17]  M. Watson,et al.  The Solution of Singular Linear Difference Systems under Rational Expectations , 1998 .

[18]  Andrew Scott,et al.  Computational Methods for the Study of Dynamic Economies , 1998 .

[19]  Kevin J. Lansing.  Optimal Fiscal Policy in a Business Cycle Model with Public Capital , 1998 .

[20]  Christopher Kent,et al.  Inflation Targeting in a Small Open Economy , 1998 .

[21]  B. Mccallum,et al.  Performance of Operational Policy Rules in an Estimated Semi-Classical Structural Model , 1998 .

[22]  A. Haldane,et al.  Forward-Looking Rules for Monetary Policy , 1998 .

[23]  B. Mccallum.  Solutions to Linear Rational Expectations Models: A Compact Exposition , 1998 .

[24]  Glenn D. Rudebusch,et al.  Policy Rules for Inflation Targeting , 1998 .

[25]  J. Galí,et al.  Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory , 1998 .

[26]  Lawrence J. Christiano.  Solving Dynamic Equilibrium Models by a Method of Undetermined Coefficients , 1998 .

[27]  Lars E. O. Svensson,et al.  Open-Economy Inflation Targeting , 1997 .

[28]  B. Mccallum,et al.  Issues in the Design of Monetary Policy Rules , 1997 .

[29]  Jeffrey C. Fuhrer.  Inflation/Output Variance Trade-Offs and Optimal Monetary Policy , 1997 .

[30]  E. P. Howrey,et al.  Evaluating alternative monetary policy rules , 1996 .

[31]  B. Mccallum.  Two Fallacies Concerning Central Bank Independence , 1995 .

[32]  John B. Taylor.  Discretion versus policy rules in practice , 1993 .

[33]  Robert H. Rasche,et al.  A comparison of some basic monetary policy regimes for open economies: A comment , 1993 .

[34]  Warwick McKibbin,et al.  A comparison of some basic monetary policy regimes for open economies: implications of different degrees of instrument adjustment and wage persistence , 1993 .

[35]  C. Mann,et al.  Evaluating Policy Regimes: New Research in Empirical MacRoeconomics , 1993 .

[36]  Lars E. O. Svensson.  Why Exchange Rate Bands? Monetary Independence in Spite of Fixed Exchange Rates , 1992 .

[37]  W. Diebold,et al.  Global Linkages: Macroeconomic Interdependence and Cooperation in the World Economy , 1992 .

[38]  B. Mccallum.  Specification of Policy Rules and Performance Measures in Multicountry Simulation Studies , 1992, SSRN Electronic Journal.

[39]  T. Sargent.  Dynamic Macroeconomic Theory , 1988 .

[40]  J. Driffíll.  The Consistency of Optimal Policy in Stochastic Rational Expectations Models , 1986 .

[41]  Kenneth Rogoff,et al.  The Optimal Degree of Commitment to an Intermediate Monetary Target''Quarterly Journal of Economics , 1985 .

[42]  W. Buiter,et al.  International Economic Policy Coordination , 1985 .

[43]  R. Barro,et al.  Rules, Discretion and Reputation in a Model of Monetary Policy , 1983 .

[44]  A. Pagan,et al.  The Theory of Economic Policy: Statics and Dynamics , 1982 .

[45]  Charles M. Kahn,et al.  THE SOLUTION OF LINEAR DIFFERENCE MODELS UNDER RATIONAL EXPECTATIONS , 1980 .

[46]  John B. Taylor.  ESTIMATION AND CONTROL OF A MACROECONOMIC MODEL WITH RATIONAL EXPECTATIONS , 1979 .

[47]  G. Calvo,et al.  On the Time Consistency of Optimal Policy in a Monetary Economy , 1978 .

[48]  Finn E. Kydland,et al.  Rules Rather than Discretion: The Inconsistency of Optimal Plans , 1977, Journal of Political Economy.

[49]  John B. Taylor.  Monetary Policy Rules , 1999 .

[50]  Per Krusell,et al.  Politico-economic equilibrium and economic growth , 1997 .

[51]  Gordon de Brouwer,et al.  Evaluating Simple Monetary-policy Rules for Australia , 1997 .

[52]  Harald Uhlig,et al.  A Toolkit for Analysing Nonlinear Dynamic Stochastic Models Easily , 1995 .

[53]  Michael Binder,et al.  Multivariate Rational Expectations Models and Macroeconomic Modelling: A Review and Some New Results , 1995 .

[54]  P. Levine,et al.  Rules, Reputation and Macroeconomic Policy Coordination , 1993 .

[55]  J. Sachs,et al.  Comparing the global performance of alternative exchange arrangements , 1988 .

[56]  Gary S. Anderson,et al.  A linear algebraic procedure for solving linear perfect foresight models , 1985 .

[57]  P. Levine,et al.  Macroeconomic Policy Design in an Interdependent World , 1985 .

[58]  Marcus Miller,et al.  Policy Coordination and Dynamic Games , 1985 .

[59]  G. Chow.  Econometric policy evaluation and optimization under rational expectations , 1980 .

[60]  Edward C. Prescott,et al.  Dynamic optimal taxation, rational expectations and optimal control , 1980 .