Stochastic Policy Design for Models with Rational Expectations and Time-Varying Parameters

Hans Amman and David Kendrick

No 633, Computing in Economics and Finance 1999 from Society for Computational Economics

Abstract: In this paper, we present a method for using rational expectations in a stochastic linear-quadratic optimization framework in which the unknown parameters are updated through a learning scheme. We use the QZ decomposition as suggested by Sims (1996) to solve the rational-expectations part of the model. Parameter updating is done with a Kalman filter, and the optimal control is calculated using the variances and covariances of the uncertain time-varying parameter.

Date: 1999-03-01
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf9:633

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