As it is now well known, in the framework of DSGE models taking into accounts agents expectations, the fully unconstrained optimal policy (the Ramsey policy) has the main drawback of being time inconsistent: the authority has an incentive to recompute the optimal policy in each period in order...

This paper shows how to use optimal control theory to derive time-consistent optimal government policies in nonlinear dynamic general equilibrium models. It extends the insight of Cohen and Michel (1988), who showed that in _linear_ models time-consistent policies can be found by imposing a...

Many recent papers, following Gali (1999), have found a negative response of employment to a positive technology shock identified as a permanent shock to labor productivity, contradicting the prediction of standard RBC models. In a recent paper, Christiano, Eichenbaum and Vigfusson (2003) get a...