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Solving for Optimal Simple Rules in Rational Expectations Models
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Solving for Optimal Simple Rules in Rational Expectations Models

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  • Richard Dennis

Abstract

This paper presents techniques to solve for optimal simple monetary policy rules in rational expectations models. Both pre-commitment and discretionary solutions are considered. The techniques described are notable for the flexibility they provide over the structure of the policy rule being solved for. Specifically, not all state variables need enter the rule. This allows rules optimal, conditional on a specified information set or structure, to be easily constructed. The algorithms are illustrated through application to the models in Clarida, Gali, and Gertler (1999) and Rudebusch (2000).

Suggested Citation

  • Richard Dennis, 2001. "Solving for Optimal Simple Rules in Rational Expectations Models," Computing in Economics and Finance 2001 30, Society for Computational Economics.
    • Handle: RePEc:sce:scecf1:30
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    More about this item

    Keywords

    Rational expectations; Discretion; Pre-commitment; Policy evaluation;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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