Elements of a theory of design limits to optimal policy
By: William A. Brock, Steven N. Durlauf.
Contributors: Durlauf, Steven N.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10495; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10495.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Economic policy -- Econometric models.; Monetary policy -- Econometric models.
Description: "This paper presents a framework for understanding the limits that exist in optimal policy design in dynamic contexts.  We consider the design of policies in the context of dynamic linear models.  Fundamental design limits exist for policy rules in such environments in the sense that any policy rule embodies tradeoffs between the magnitudes of different frequency-specific components of the variance.  Hence policies that are effective in eliminating low frequency variance components of a state variable can only do so at the cost of exacerbating high frequency variance components, and vice versa.  Examples of the implications of such tradeoffs are considered"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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