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Optimal Policy with Partial Information in a Forward-Looking Model: Certainty-Equivalence Redux

Lars E. O. Svensson and Michael Woodford

No 9430, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper proves a certainty equivalence result for optimal policy under commitment with symmetric partial information about the state of the economy in a model with forward-looking variables. This result is used in our previous paper, Indicator Variables for Optimal Policy,' which synthesizes what is known about the case of symmetric partial information, and derives useful general formulas for computation of the optimal policy response coefficients and efficient estimates of the state of the economy in the context of a fairly general forward-looking rational-expectations model. In particular, our proof takes into account that, under commitment, the policymaker can affect the future evolution of the observable variables, and thereby potentially affect the future information available.

JEL-codes: E37 E47 (search for similar items in EconPapers)
Date: 2003-01
New Economics Papers: this item is included in nep-mon
Note: ME
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Citations: View citations in EconPapers (22)

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