Time-Consistently Undominated Policies

Charles Brendon () and Martin Ellison
Additional contact information
Charles Brendon: Centre for Economic Policy Research (CEPR)

No 1801, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: This paper proposes and characterises a new normative solution concept for Kydland and Prescott problems, allowing for a commitment device. A policy choice is dominated if either (a) an alternative exists that is superior to it in a time-consistent subdomain of the constraint set, or (b) an alternative exists that Pareto-dominates it over time. Policies may be time-consistently undominated where time-consistent optimality is not possible. We derive necessary and sufficient conditions for this to be true, and show that these are equivalent to a straightforward but significant change to the first-order conditions that apply under Ramsey policy. Time-consistently undominated policies are an order of magnitude simpler than Ramsey choice, whilst retaining normative appeal. This is illustrated across a range of examples.

Keywords: Time consistency; Undominated policy; Ramsey policy (search for similar items in EconPapers)
JEL-codes: D02 E61 (search for similar items in EconPapers)
Pages: 77 pages
Date: 2018-01
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.centreformacroeconomics.ac.uk/Discussio ... MDP2018-01-Paper.pdf (application/pdf)

Related works:
Working Paper: Time-Consistently Undominated Policies (2018)
Working Paper: Time-Consistently Undominated Policies (2018)
Working Paper: Time-consistently undominated policies (2018)
Working Paper: Time-Consistently Undominated Policies (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:1801

Access Statistics for this paper

More papers in Discussion Papers from Centre for Macroeconomics (CFM) Contact information at EDIRC.
Bibliographic data for series maintained by Helen Power ().