Benefits from U . S . Monetary Policy Experimentation in the Days of Samuelson and Solow and Lucas aaa

  title={Benefits from U . S . Monetary Policy Experimentation in the Days of Samuelson and Solow and Lucas aaa},
  author={Timothy Cogley and Riccardo Colacito and Thomas J. Sargent},
A policy maker knows two models of inflation-unemployment dynamics. One implies an exploitable trade-off, the other does not. The policy maker’s prior probability over the two models is part of his state vector. Bayes’ law converts the prior probability into a posterior probability at each date and gives the policy maker an incentive to experiment. For two models calibrated to U.S. data through the early 1960s, we isolate the component of government policy that is due to experimentation by… CONTINUE READING
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