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Unconditionally optimal Ramsey policy

Tatiana Damjanovic (), Vladislav Damjanovic and Charles Nolan ()

Journal of Macroeconomics, 2021, vol. 69, issue C

Abstract: We discuss a time invariant policy which delivers the unconditionally optimal outcomes in purely forward-looking models and Ramsey outcomes in purely backward-looking models. This policy is a product of interaction between two institutions with distinct responsibilities. Motivated by Brendon and Ellison (2015), we think of them as arms of government. One institution is responsible for ‘forward guidance’, setting rules which are necessary and sufficient to determine private expectations. The second institution implements optimal policy taking expectations as given. The forward guidance rules are designed to maximise the unconditional expectation of the social objectives.

Keywords: Time inconsistency; Forward guidance; Unconditional optimisation; Ramsey optimal policy (search for similar items in EconPapers)
JEL-codes: E50 E51 E60 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:69:y:2021:i:c:s0164070421000495

DOI: 10.1016/j.jmacro.2021.103346

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