Caution in Macroeconomic Policy: Uncertainty and the Relative Intensity of Policy

P. Ruben Mercado () and David Andrew Kendrick ()
Additional contact information
P. Ruben Mercado: Bryn Mawr College

No 1343, Computing in Economics and Finance 1999 from Society for Computational Economics

Abstract: Two lines of literature show that increased uncertainty results in decreased vigor of the control variable in the first time period. The first line uses static models, the second dynamic. Here, the dynamic line is extended from one-state, one-control models to ones with two control variables. We confirm the Johansen result from the static line that, in this case, one control is used less intensely and the other more intensely when current uncertainty is increased. We then extend this result to models with zero weights on the controls, giving a linear complementarity outcome. Analyses from both lines of the literature effectively involve single-period results, since even the dynamic line has focused on the effects of current uncertainty. Here we follow a suggestion from Craine to extend the results to a multiperiod framework. Using the Riccati equations, we study the effects of increased uncertainty in a future time period on the use of controls in the first time period. We find, contrary to the single-period results, that the outcomes reveal that both control variables (or at least one, depending of the relative magnitude of first-period control parameter weighted variances) are used more, rather than less, intensely.

Date: 1999-03-01
View list of references

Downloads: (external link)
http://www.eco.utexas.edu/faculty/Kendrick/papers/CautionI.pdf main text (application/pdf)

Related works:
Journal Article: Caution in macroeconomic policy: uncertainty and the relative intensity of policy (2000)
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: http://EconPapers.repec.org/RePEc:sce:scecf9:1343

Access Statistics for this paper

More papers in Computing in Economics and Finance 1999 from Society for Computational Economics
Address: CEF99, Boston College, Department of Economics, Chestnut Hill MA 02467 USA
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().