Working Paper: CEPR ID: DP3706
Authors: Andrea Gerali; Francesco Lippi
Abstract: 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 that solves this class of models and analyses their properties using simulations, impulse response functions and other techniques, with both commitment and discretion. A monetary policy application, based on the ?new-Keynesian? model of Clarida, Galí and Gertler (1999), is used to illustrate how the toolkit can be used.
Keywords: commitment; filtering; optimal control
JEL Codes: E50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Toolkit (Y20) | Optimal policy under commitment (D86) |
| Toolkit (Y20) | Ease of applying theoretical results (C01) |
| Toolkit (Y20) | History-dependent representation of optimal commitment policy (D15) |
| Algorithms (C89) | Understanding of economic dynamics (E32) |
| Commitment (D23) | Superior welfare outcomes (D69) |