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Computing Optimal Policy in a Timeless-Perspective: An Application to a Small-Open Economy

Michel Juillard () and Florian Pelgrin

Staff Working Papers from Bank of Canada

Abstract: Since the contribution of Kydland and Prescott (1977), it is well known that the optimal Ramsey policy is time inconsistent. In a series of recent contributions, Woodford (2003) proposes a new methodology to circumvent this problem, namely the timeless perspective solution. However, one main limitation is that it is not yet empirically implementable. In this paper, we develop a new methodology to compute initial values of the Lagrange multipliers in order to implement the timeless-perspective solution. In so doing, we also provide a generalization of the Ramsey and timeless-perspective problems. We apply our results to a small-open economy model in Canada.

Keywords: Monetary; policy; framework (search for similar items in EconPapers)
JEL-codes: C6 E5 E6 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:07-32

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