Ordering Policy Rules with an Unconditional Welfare Measure
by Tatiana Damjanovica, Vladislav Damjanovica and Charles Nolanb
The unconditional expectation of social welfare is often
used to assess alternative macroeconomic policy rules in
applied quantitative research. This paper provides a detailed
analysis of such policies. It sets out the unconditionally optimal
(UO) policy problem and derives a linear-quadratic (LQ)
version of that problem that approximates the exact non-linear
problem. The properties of UO policies are analyzed through a
series of examples and contrasted with the timeless perspective
(TP), exposited in Benigno and Woodford (2012). Some substantive
implications for optimal monetary policy are explored.
JEL Codes: E20, E32, F32, F41.
Full article (PDF, 47 pages, 604 kb)
a University of Exeter
b University of Glasgow