Working Paper: NBER ID: w9430
Authors: Lars E.O. Svensson; Michael Woodford
Abstract: This paper proves a certainty equivalence result for optimal policy under commitment with symmetric partial information about the state of the economy in a model with forward-looking variables. This result is used in our previous paper, Indicator Variables for Optimal Policy,' which synthesizes what is known about the case of symmetric partial information, and derives useful general formulas for computation of the optimal policy response coefficients and efficient estimates of the state of the economy in the context of a fairly general forward-looking rational-expectations model. In particular, our proof takes into account that, under commitment, the policymaker can affect the future evolution of the observable variables, and thereby potentially affect the future information available.
Keywords: No keywords provided
JEL Codes: E37; E47; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| optimal policy under commitment with symmetric partial information (D82) | certainty equivalence result (D52) |
| policymaker's actions (D78) | future observable variables (C29) |
| future observable variables (C29) | information available for optimal decisions (D80) |
| optimal policy (C61) | linear function of current estimate of predetermined variables (C51) |
| optimal policy (C61) | specific Lagrange multipliers (C39) |
| separation principle (H77) | optimization problem treated independently of estimation problem (C51) |
| optimal response coefficients (C51) | independent of central bank's objective function (E58) |