Optimal Policy in Rational Expectations Models : New Solution Algorithms ∗

  title={Optimal Policy in Rational Expectations Models : New Solution Algorithms ∗},
  author={Richard Dennis},
This paper develops methods to solve for optimal discretionary policies and optimal commitment policies in rational expectations models. These algorithms, which allow the optimization constraints to be conveniently expressed in second-order structural form, are more general than existing methods and are simple to apply. We use several New Keynesian business cycle models to illustrate their application. Simulations show that the procedures developed in this paper can quickly solve small-scale… CONTINUE READING
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