Indicator Variables for Optimal Policy

By Lars E. O. Svensson, Michael Woodford. Social Science Research Network, 2003

401 citations recorded by the source corpus.

The optimal weights on indicators in models with partial information about the state of the economy and forward-looking variables are derived and interpreted, both for equilibria under discretion and under commitment. An example of optimal monetary policy with a partially observable potential output and a forward-looking indicator is examined. The optimal response to the optimal estimate of potential output displays certainty-equivalence, whereas the optimal response to the imperfect observation of output depends on the noise in this observation.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/8992fd6aae721c2940375b4edfb8e09e06fa7999

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

Citations in the corpus

Optimal Inflation Targeting Rules (2003, positive): “Our general characterization in Giannoni and Woodford (2002a) is in terms of a fairly abstract notation, involving eigenvectors and matrix lag polynomials.”
An Estimated Stochastic Dynamic General Equilibrium Model of the Euro Area (2002, positive): “23 We use the techniques of Svensson and Woodford (2000). For an application, see Ehrman and Smets (2001). It is important to note that the model is estimated under the assumption that the agents in the economy know the structure of the economy.”
Monetary Theory and Policy, 2nd Edition (2003, methodology): “For example, Taylor (1993a) employed a simple interest rate rule that closely matches the actual behavior of the federal funds rate in recent years.”
Imperfect Knowledge, Adaptive Learning, and the Bias Against Activist Monetary Policies (2006, background): “…and certainty equivalence holds, so that the optimal policy is unaffected by additive uncertainty; moreover, quadratic utility makes imperfect observability of the state variables irrelevant in the choice of the lossminimising control rule, as recently demonstrated by Svensson and Woodford (2000).”
Imperfect Information, Real‐Time Data and Monetary Policy in the Euro Area (2012, positive): “9 The matrix P is the covariance matrix of the prediction errors Xt Xtjt 1 (Svensson and Woodford 2003).”
Exogenous Information, Endogenous Information and Optimal Monetary Policy (2014, neutral): “C∗ t = 3 α I1+ψ ́ 1 γ−1+ 1 α (1+ψ) A 1 α (1+ψ) γ−1+ 1 α (1+ψ) t , (25)”
Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision-Making (2005, neutral): “" If our loss function were quadratic, the optimal policy rule under partial information would be the same as its full-information counterpart , according to Svensson and Woodford (2000).”
Money and Inflation in the Euro Area: A Case for Monetary Indicators? (2003, background): “Bernanke and Woodford [3], Clarida, Gali and Gertler [8] and Svensson and Woodford [38] discuss forward-looking Phillips curves with in‡ation predetermined by one period and given by ¼t+1 = ±Et¼t+2 + ®yEt(yt+1 ¡ y¤t+1) + "t+1; where ± (0 < ± · 1) is a discount factor.”
Learning in a Medium-Scale DSGE Model with Expectations Based on Small Forecasting Models (pp. 65-101) (2012, background): “…approach of Sims (2003), the Epidemiology of Macroeconomic Expectations by Carroll (2001), the Sticky Information model of Mankiw and Reis (2002), the Partial Information model of Pearlman et al. (1986) and Svensson and Woodford (2003), and the learning approach of Evans and Honkapohja (1999).”
The Limits of Transparency (2011, background): “Those who believe that the Fed should respect the wishes of the majority as represented by elected officials would probably 23 A recent formulation of those results in linear economies with forward-looking variables and quadratic loss functions appears in Svensson and Woodford (2003).”
Regime switches, Agents’ Beliefs, and Post-World War II U.S. Macroeconomic Dynamics (2013, neutral): “Giannoni (2008) and Svensson and Woodford (2003). However, this approach would add a substantial computational burden.”
A Theory of Demand Shocks (2009, background): “8See Kosuke Aoki (2003), Athanasios Orphanides (2003), Reis (2003), Lars E.O. Svensson and Woodford (2003, 2005), Andrea Tambalotti (2003).”
Optimal Monetary Policy with Uncertain Fundamentals and Dispersed Information (2009, neutral): “Next, notice that to ensure that (34) always holds in equilibrium, for any choice of ξm ∈ R, the following conditions need to be satisfied ξ0 = γκc, (40) ξa = − (φa + γψa) (1− ρ) , (41) μ0 = ψ0, (42) μa = φa + ψa, (43) μθ = φs + φx + ψs + ψx + ψx, (44) μe = φs + ψs.”