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The Welfare of Ramsey Optimal Policy Facing Auto-Regressive Shocks

Jean-Bernard Chatelain () and Kirsten Ralf

PSE-Ecole d'économie de Paris (Postprint) from HAL

Abstract: With non-controllable auto-regressive shocks, the welfare of Ramsey optimal policy is the solution of a single Riccati equation of a linear quadratic regulator. The existing theory by Hansen and Sargent (2007) refers to an additional Sylvester equation but miss another equation for computing the block matrix weighting the square of non-controllable variables in the welfare function. There is no need to simulate impulse response functions over a long period, to compute period loss functions and to sum their discounted value over this long period, as currently done so far. Welfare is computed for the case of the new-Keynesian Phillips curve with an auto-regressive cost-push shock. JEL classi…cation numbers: C61, C62, C73, E47, E52, E61, E63.

Keywords: augmented linear quadratic regulator; forcing variables; algorithm; Stackelberg dynamic game; Ramsey optimal policy; new-Keynesian Phillips curve (search for similar items in EconPapers)
Date: 2020-06-24
New Economics Papers: this item is included in nep-dge and nep-mac
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-02881216
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Published in Economics Bulletin, Economics Bulletin, 2020, 40 ((2)), pp.1797-1803

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Journal Article: The Welfare of Ramsey Optimal Policy Facing Auto-Regressive Shocks (2020) Downloads
Journal Article: The Welfare of Ramsey Optimal Policy Facing Auto-Regressive Shocks (2020) Downloads
Working Paper: The Welfare of Ramsey Optimal Policy Facing Auto-Regressive Shocks (2020) Downloads
Working Paper: The Welfare of Ramsey Optimal Policy Facing Auto-Regressive Shocks (2020) Downloads
Working Paper: The Welfare of Ramsey Optimal Policy Facing Auto-Regressive Shocks (2020) Downloads
Working Paper: The Welfare of Ramsey Optimal Policy Facing Auto-Regressive Shocks (2020) Downloads
Working Paper: The Welfare of Ramsey Optimal Policy Facing Auto-Regressive Shocks (2020) Downloads
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