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How Should Control Theory be Used by a Time-Consistent Government?

Cohen, Daniel; Michel, Philippe - C.E.P.R. Discussion Papers - 1986

It has been recognized that the optimal strategy of a government is generally time-inconsistent: optimality requires that the government take into account expectations effects in the formulation of its policy and to ignore these effects when applying the policy. In order to analyse the problem,...

Persistent link: https://www.econbiz.de/10005666548

Optimal Target Criteria for Stabilization Policy

Giannoni, Marc; Woodford, Michael - C.E.P.R. Discussion Papers - 2010

This paper considers a general class of nonlinear rational-expectations models in which policymakers seek to maximize an objective function that may be household expected utility. We show how to derive a target criterion that is: (i) consistent with the model's structural equations, (ii) strong...

Persistent link: https://www.econbiz.de/10008468673

Optimal Monetary Policy using a VAR

Polito, Vito; Wickens, Michael R. - C.E.P.R. Discussion Papers - 2008

In this paper we propose a new way to formulate optimal policy based on a quadratic intertemporal welfare function where the dynamic constraint is based on a VAR model of the economy which we call the PVAR method. We argue that the VAR under control should not be derived simply by replacing the...

Persistent link: https://www.econbiz.de/10005497823

Optimal fiscal policy

Lukkezen, Jasper; Teulings, Coen N - C.E.P.R. Discussion Papers - 2013

This paper derives and estimates rules for fiscal policy that prescribe the optimal response to changes in unemployment and debt. We combine the reducedform model of the economy from a linear VAR with a non-linear welfare function and obtain analytic solutions for optimal policy. The variables...

Persistent link: https://www.econbiz.de/10011084121

Optimal Control and Filtering in Linear Forward-looking Economies: A Toolkit

Gerali, Andrea; Lippi, Francesco - C.E.P.R. Discussion Papers - 2003

We provide algorithms to solve a linear-quadratic optimal control problem with commitment. By extending to the case of imperfect information a procedure outlined in Ljungqvist and Sargent (2002), we make the results of Svensson and Woodford (2000) easy to implement. We provide a Mat-lab package...

Persistent link: https://www.econbiz.de/10005661950

Experimentation in Two-Sided Markets

Peitz, Martin; Rady, Sven; Trepper, Piers - C.E.P.R. Discussion Papers - 2011

We study optimal experimentation by a monopolistic platform in a two-sided market framework. The platform provider faces uncertainty about the strength of the externality each side is exerting on the other. It maximizes the expected present value of its profit stream in a continuous-time...

Persistent link: https://www.econbiz.de/10009371477

Three Models of Imperfect Transparency in Monetary Policy

Demertzis, Maria; Hughes Hallett, Andrew - C.E.P.R. Discussion Papers - 2003

transparency and constructive ambiguity. The first two show that transparency reduces the variability of inflation and the output … preferences for all circumstances, in line with the hypothesis of constructive ambiguity, we find that both the levels and the … may have been exploiting constructive ambiguity more than a lack of transparency. …

Persistent link: https://www.econbiz.de/10005666818

Portfolio Selection with Parameter and Model Uncertainty: A Multi-Prior Approach

Garlappi, Lorenzo; Uppal, Raman; Wang, Tan - C.E.P.R. Discussion Papers - 2005

In this paper, we show how an investor can incorporate uncertainty about expected returns when choosing a mean-variance optimal portfolio. In contrast to the Bayesian approach to estimation error, where there is only a single prior and the investor is neutral to uncertainty, we consider the case...

Persistent link: https://www.econbiz.de/10005791415

Keynes Meets Markowitz: The Trade-off Between Familiarity and Diversification

Boyle, Phelim; Garlappi, Lorenzo; Uppal, Raman; Wang, Tan - C.E.P.R. Discussion Papers - 2010

assets - and Markowitz - who advocates diversification across assets. We rely on the concepts of ambiguity and ambiguity … degree of ambiguity across assets, and (ii) the standard deviation of the estimate of expected return on each asset. If the … standard deviation of the expected return estimate and the difference between the ambiguity about familiar and unfamiliar …

Persistent link: https://www.econbiz.de/10008468537

Portfolio Selection with Parameter and Model Uncertainty: A Multi-Prior Approach

Garlappi, Lorenzo; Uppal, Raman; Wang, Tan - C.E.P.R. Discussion Papers - 2005

Persistent link: https://www.econbiz.de/10005124485