Ordering policy rules with an unconditional welfare measure
Abstract
The unconditional expectation of social welfare is often used to assess alternative macroeconomic policy rules in applied quantitative research. It is shown that it is generally possible to derive a linear-quadratic problem that approximates the exact non-linear problem where the unconditional expectation of the objective is maximised and the steady-state is distorted. Thus, the measure of policy performance is a linear combination of second moments of economic variables which is relatively easy to compute numerically, and can be used to rank alternative policy rules. The approach is applied to a simple Calvo-type model under various monetary policy rules.
Citation
Damjanovic , V , Damjanovic , T & Nolan , C 2011 ' Ordering policy rules with an unconditional welfare measure ' School of Economics & Finance Discussion Paper , no. 1102 , University of St Andrews .
ISSN
0962-4031Type
Working or discussion paper
Rights
(c) the author
Description
SubmittedCollections
Items in the St Andrews Research Repository are protected by copyright, with all rights reserved, unless otherwise indicated.