Optimal Time-Invariant Monetary Policy
Charles Brendon
Abstract
This paper investigates how best to determine time-invariant policy rules in macroeconomic models with forward-looking constraints, where fully optimal policy is known to be time-inconsistent. It proposes a new ‘coefficient optimisation’ approach that improves upon the timeless perspective method of Woodford (2003) in deterministic problems, and on average in stochastic problems, without resorting to asymptotic (‘unconditional’) loss comparisons.
Keywords: Timeless perspective, Time consistency, Optimal monetary policy, Time-invariant policy
Date: November 2009 | Reference number(s): 463
Series: Department of Economics Discussion Paper Series
JEL Classifications: E31, E52, E58, E61