Optimal Policy Restrictions on Observable Outcomes

Federico Ravenna

Cahiers de recherche from CIRPEE

Abstract: We study the restrictions implied by optimal policy DSGE models for the volatility of observable endogenous variables. Our approach uses a parametric family of singular models to discriminate which volatility sample outcomes have zero probability of being generated by an optimal policy. Thus the set of volatility outcomes generated by the model is not of measure zero even if there are no random deviations from optimal policymaking. This methodology is applied to a new Keynesian business cycle model widely used in the optimal monetary policy literature, and its implications for the assessment of US monetary policy performance over the 1984-2005 period are discussed.

Keywords: Optimal monetary policy; business cycle; DSGE model; policy performance (search for similar items in EconPapers)
JEL-codes: E30 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:1027

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