Indicator Variables for Optimal Policy

Lars Svensson () and Michael Woodford
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Lars Svensson: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm

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
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (54)

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http://su.diva-portal.org/smash/get/diva2:328724/FULLTEXT01 (application/pdf)

Related works:
Journal Article: Indicator variables for optimal policy (2003)
Journal Article: Indicator variables for optimal policy (2000)
Working Paper: Indicator variables for optimal policy (2000)
Working Paper: Indicator Variables for Optimal Policy (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iiessp:0688

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