by Tatiana Damjanovica, Vladislav Damjanovica and Charles Nolanb
The unconditional expectation of social welfare is often used to assess alternative macroeconomic policy rules in applied quantitative research. This paper provides a detailed analysis of such policies. It sets out the unconditionally optimal (UO) policy problem and derives a linear-quadratic (LQ) version of that problem that approximates the exact non-linear problem. The properties of UO policies are analyzed through a series of examples and contrasted with the timeless perspective (TP), exposited in Benigno and Woodford (2012). Some substantive implications for optimal monetary policy are explored.
JEL Codes: E20, E32, F32, F41.
Full article (PDF, 47 pages, 604 kb)
a University of Exeter
b University of Glasgow