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Indicator variables for optimal policy

Lars Svensson () and Michael Woodford ()

No 12, Working Paper Series from European Central Bank

Abstract: The optimal weights on indicators in models with partial information about the state of the economy and forward-looking variables are derived and interpreted, both for equilibria under discretion and under commitment. An example of optimal monetary policy with a partially observable potential output and a forward-looking indicator is examined. The optimal response to the optimal estimate of potential output displays certainty-equivalence, whereas the optimal response to the imperfect observation of output depends on the noise in this observation. JEL Classification: E37, E47, E52, E58

Keywords: discretion and commitment; Kalman filter; monetary policy; partial information (search for similar items in EconPapers)
Date: 2000-02
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Related works:
Journal Article: Indicator variables for optimal policy (2003) Downloads
Journal Article: Indicator variables for optimal policy (2000) Downloads
Working Paper: Indicator Variables for Optimal Policy (2000) Downloads
Working Paper: Indicator Variables for Optimal Policy (2000) Downloads
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