Svensson, L.E.O., Woodford, M., 2002b. Optimal policy with partial information in a forward-looking model: certainty equivalence redux, working paper, Princeton University.  Home/Search   Document Not in Database   Summary   Related Articles   Check

.... estimates of potential output and the cost push shock, this example illustrates the gist of the estimation problem with forward looking 3 The demonstration of certainty equivalence under commitment raises some special di#culties which are treated in a separate paper, Svensson and Woodford [37]. 3 variables. Finally, section 6 presents some conclusions, while Appendices A E report some technical details. 2 Optimization under discretion We consider a linear model of an economy with two agents, an (aggregate) private sector and a policymaker, called the central bank. The model is given ....

....upon the way that it has committed itself to behave in other states that might have occurred instead. As shown in Pearlman [19] for a slightly less general case, certainty equivalence applies in this case as well. A more intuitive proof of certainty equivalence is supplied in Svensson and Woodford [37]. Svensson and Woodford [37] show that the optimal policy under commitment satisfies i t = FX t t ## t 1 , 3.1) x t t = GX t t ## t 1 , 3.2) # t = SX t t ## t 1 , 3.3) for t # t 0 ,whereF , G, S, #, # and # are matrices of appropriate dimension, and # t is the vector of the n x Lagrange ....

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Svensson, Lars E.O., and Michael Woodford (1999c), "Optimal Policy with Partial Information in a Forward-Looking Model: Certainty-Equivalence Redux, " in preparation.

.... 3 Throughout the paper, we maintain the assumption of symmetric information between the private sector and the central bank; the asymmetric 3 The demonstration of certainty equivalence under commitment raises some special diculties which are treated in a separate paper, Svensson and Woodford [37]. 2 case where certainty equivalence does not hold is treated in Svensson and Woodford [36] Section 4 discusses the interpretation of the Kalman lter. It shows how the Kalman lter can be modied to handle the simultaneity and circularity referred to above, and that the current estimate of the ....

....the way that it has committed itself to behave in other states that might have occurred instead. As shown in Pearlman [19] for a slightly less general case, certainty equivalence applies in this case as well. A more intuitive proof of certainty equivalence is supplied in Svensson and 7 Woodford [37]. Svensson and Woodford [37] show that the optimal policy under commitment satises i t = FX tjt t1 ; 3.1) x tjt = GX tjt t1 ; 3.2) t = SX tjt t1 ; 3.3) for t t 0 , where F , G, S, and are matrices of appropriate dimension, and t is the vector of the n x Lagrange multiplier of ....

[Article contains additional citation context not shown here]

Svensson, Lars E.O., and Michael Woodford (1999c), Optimal Policy with Partial Information in a Forward-Looking Model: Certainty-Equivalence Redux, in preparation.

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Svensson, L.E.O., Woodford, M., 2002b. Optimal policy with partial information in a forward-looking model: certainty equivalence redux, working paper, Princeton University.

....(2000) All of these papers assume models of the monetary transmission mechanism that include at least some forward looking elements. 4 The demonstration of certainty equivalence under commitment raises some special di#culties which are treated in a separate paper, Svensson and Woodford [42]. 3 2 Optimization under discretion We consider a linear model of an economy with two agents, an (aggregate) private sector and a policymaker, called the central bank. The model is given by # # # X t 1 Ex t 1 t # # # = A 1 # # # X t x t # # # A 2 # # # X t t x t t # # # Bi ....

....upon the way that it has committed itself to behave in other states that might have occurred instead. As shown in Pearlman [24] for a slightly less general case, certainty equivalence applies in this case as well. A more intuitive proof of certainty equivalence is supplied in Svensson and Woodford [42]. Svensson and Woodford [42] show that the optimal policy under commitment satisfies i t = FX t t ## t 1 , 3.1) x t t = GX t t ## t 1 , 3.2) # t = SX t t ## t 1 , 3.3) for t # t 0 ,whereF , G, S, #, # and # are matrices of appropriate dimension, and # t is the vector of (the central ....

[Article contains additional citation context not shown here]

Svensson, Lars E.O., and Michael Woodford (2000b), "Optimal Policy with Partial Information in a Forward-Looking Model: Certainty-Equivalence Redux," in preparation.

....estimates X t t , with coe#cients that are independent of the nature of the partial information. This is an aspect of the separation principle that can be shown to hold in the case of symmetric incomplete information, just as in the case of full information. However, that derivation (detailed in [13]) cannot be applied here, given that E t x t 1 must be distinguished from x t 1 t . However, the second row of (2.1) does imply that I(E t y t 1 y t 1 t ) Ay t , 3.14) where y t # y t y t t . Here we use the fact that i t must be measurable with respect to I t . Similarly, 3.2) ....

Svensson, Lars E.O., and Michael Woodford (2001), "Optimal Policy with Partial Information in a Forward-Looking Model: Certainty-Equivalence Redux," in preparation. 26

....estimates X tjt ; with coecients that are independent of the nature of the partial information. This is an aspect of the separation principle that can be shown to hold in the case of symmetric incomplete information, just as in the case of full information. However, that derivation (detailed in [13]) cannot be applied here, given that E t x t 1 must be distinguished from x t 1jt : However, the second row of (2.1) does imply that I(E t y t 1 y t 1jt ) A y t ; 3.14) where y t y t y tjt . Here we use the fact that i t must be measurable with respect to I t . Similarly, 3.2) ....

Svensson, Lars E.O., and Michael Woodford (2001), "Optimal Policy with Partial Information in a Forward-Looking Model: Certainty-Equivalence Redux," in preparation. 26

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Svensson, Lars E.O., and Michael Woodford (1999), Optimal Policy with Partial Information in a Forward-Looking Model: Certainty-Equivalence Redux, in preparation.

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