Loose commitment in medium-scale macroeconomic models: Theory and an application

Davide Debortoli, Junior Maih and Ricardo Nunes

No 2010/25, Working Paper from Norges Bank

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

Keywords: Commitment; Discretion; Linear-Quadratic (search for similar items in EconPapers)
JEL-codes: C32 E58 E61 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2010-12-06
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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https://www.norges-bank.no/en/news-events/news-pub ... pers/2010/WP-201025/

Related works:
Journal Article: LOOSE COMMITMENT IN MEDIUM-SCALE MACROECONOMIC MODELS: THEORY AND APPLICATIONS (2014)
Working Paper: Loose commitment in medium-scale macroeconomic models: theory and applications (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2010_25

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