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LOOSE COMMITMENT IN MEDIUM-SCALE MACROECONOMIC MODELS: THEORY AND APPLICATIONS

Davide Debortoli, Junior Maih and Ricardo Nunes

Macroeconomic Dynamics, 2014, vol. 18, issue 1, 175-198

Abstract: This paper proposes a method and a toolkit for solving optimal policy with imperfect commitment. As opposed to the existing literature, our method can be employed in the medium- and large-scale models typically used in monetary policy. We apply our method to the Smets and Wouters model [American Economic Review 97(3), 586–606 (2007)], for which we show that imperfect commitment has relevant implications for interest rate setting, the sources of business cycle fluctuations, and welfare.

Date: 2014
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Citations: View citations in EconPapers (29)

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Working Paper: Loose commitment in medium-scale macroeconomic models: theory and applications (2011) Downloads
Working Paper: Loose commitment in medium-scale macroeconomic models: Theory and an application (2010) Downloads
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