Policy, Discretion, Time-Consistent Policy, Markov-Perfect Equilibrium, In-
complete Information, Kalman Filter
1
1 … avoids the associated multiplicity of equilibria. In the spirit of “bygones are by-
gones”, state variables in a Markov-perfect … equilibrium must be relevant for current payoffs.16 In
16Persson and Tabellini (2000, Chapter 11) review applications of Markov …