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EnglishWe consider a general class of nonlinear optimal policy problems with forward-looking constraints, and show how to derive a problem with linear constraints and a quadratic objective that approximates the exact problem. The solution to the LQ approximate problem represents a local linear approximation to optimal policy from the \timeless perspective" proposed in Benigno and Woodford [6,7], in the case of small enough stochastic disturbances. We also derive the second-order conditions for the LQ problem to have a solution, and show how to correctly rank alternative simple policy rules, again in the case of small enough shocks.
| Titolo: | Linear-Quadratic Approximation of Optimal Policy Problems | |
| Autori: | ||
| Data di pubblicazione: | 2012 | |
| Rivista: | ||
| Abstract: | We consider a general class of nonlinear optimal policy problems with forward-looking constraints, and show how to derive a problem with linear constraints and a quadratic objective that approximates the exact problem. The solution to the LQ approximate problem represents a local linear approximation to optimal policy from the \timeless perspective" proposed in Benigno and Woodford [6,7], in the case of small enough stochastic disturbances. We also derive the second-order conditions for the LQ problem to have a solution, and show how to correctly rank alternative simple policy rules, again in the case of small enough shocks. | |
| Handle: | http://hdl.handle.net/11385/20042 | |
| Appare nelle tipologie: | 01.1 - Articolo su rivista (Article) |
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| File | Descrizione | Tipologia | Licenza | |
|---|---|---|---|---|
| JET MS2008407_final.pdf | Documento in Post-print | Tutti i diritti riservati | Administrator |
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