Which Parameters Drive Approximation Inaccuracies?

Sebastian Sienknecht ()
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Sebastian Sienknecht: Department of Economics, Friedrich-Schiller-University Jena

No 2010-093, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: This paper identifies parameters responsible for welfare reversals when the basic New Keynesian model is approximated. In our setting, a reversal occurs when the Ramsey policy under timeless perspective commitment ceases to be dominant against the Taylor rule after approximating the model. We find that the parameters involved are the degree of persistence in the autoregressive shock process and the labor elasticity of real output.

Keywords: Optimal Monetary policy; Approximations; Welfare Analysis; Timeless Perspective (search for similar items in EconPapers)
JEL-codes: E30 E52 E61 (search for similar items in EconPapers)
Date: 2010-12-16
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2010-093

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