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September 2011 issue
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Laséen and Svensson
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Wolden, Roisland and Torstensen
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Joyce, Lasaosa, Stevens and Tong
Glindro, Subhanij, Szeto and Zhu
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Anticipated Alternative Policy Rate Paths in Policy Simulations

by Stefan Laséena and Lars E.O. Svenssonb

Abstract

This paper specifies a new convenient algorithm to construct policy projections conditional on alternative anticipated policy rate paths in linearized dynamic stochastic general equilibrium (DSGE) models, such as Ramses, the Riksbank’s main DSGE model. Such projections with anticipated policy rate paths correspond to situations where the central bank transparently announces that it, conditional on current information, plans to implement a particular policy rate path and where this announced plan for the policy rate is believed and then anticipated by the private sector. The main idea of the algorithm is to include among the predetermined variables (the “state” of the economy) the vector of non-zero means of future shocks to a given policy rule that is required to satisfy the given anticipated policy rate path.

JEL Codes: E52, E58.

 
Full article (PDF, 35 pages 303 kb)


a Sveriges Riksbank
b Stockholm University