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Unconditionally Optimal Ramsey policy

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

No 2017_01, CEGAP Working Papers from Durham University Business School

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 ëforward guidanceí, setting rules which are necessary and su¢ cient 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 E60 E51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2017-01
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