Design Limits and Dynamic Policy Analysis

William Brock, Steven Durlauf and Giacomo Rondina

No 14357, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper characterizes the frequency domain properties of feedback control rules in linear systems in order to better understand how different policies affect outcomes frequency by frequency. We are especially concerned in understanding how reductions of variance at some frequencies induce increases in variance at others. Tradeoffs of this type are known in the control literature as design limits. Design limits are important in understanding the full range of effects of macroeconomic stabilization policies. We extend existing results to account for discrete time bivariate systems with rational expectations. Application is made to the evaluation of monetary policy rules.

JEL-codes: C6 E52 (search for similar items in EconPapers)
Date: 2008-09
New Economics Papers: this item is included in nep-cba and nep-mac
Note: EFG ME
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Citations: View citations in EconPapers (9)

Published as Brock, William A. & Durlauf, Steven N. & Rondina, Giacomo, 2013. "Design limits and dynamic policy analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2710-2728.

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