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Indicator Variables for Optimal Policy

Lars Svensson () and Michael Woodford ()

No 688, Seminar Papers from Stockholm University, Institute for International Economic Studies

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.

Keywords: Partial information; Kalman filter; monetary policy; discretion and commitment (search for similar items in EconPapers)
JEL-codes: E37 E47 E52 E58 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2000-09-01
New Economics Papers: this item is included in nep-mon
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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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