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Indicator Variables for Optimal Policy
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
Princeton University.
2000 (English)Report (Other academic)
Abstract [en]

The optimal weights on indicators in models with partial information about the state of the economy and forward-looking variables are derived and interpreted, both for equilibria under discretion and under commitment. An example of optimal monetary policy with a partially observable potential output and a forward-looking indicator is examined. The optimal response to the optimal estimate of potential output displays certainty-equivalence, whereas the optimal response to the imperfect observation of output depends on the noise in this observation.

Place, publisher, year, edition, pages
Stockholm: IIES , 2000. , 53 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 688
Keyword [en]
Partial inflation, Kalman filter, monetary policy, discretion and commitment
National Category
URN: urn:nbn:se:su:diva-41165OAI: diva2:328724
Available from: 2010-07-07 Created: 2010-07-06 Last updated: 2010-08-16Bibliographically approved

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Svensson, Lars E.O.
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