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Title:Computing optimal policy in a timeless-perspective: An application to a small-open economy PDF Logo
Authors:Juillard, Michel
Pelgrin, Florian
Issue Date:2007
Series/Report no.:Bank of Canada Working Paper 2007,32
Abstract:Since the contribution of Kydland and Prescott (1977), it is well known that the optimal Ramsey policy is time inconsistent. In a series of recent contributions, Woodford (2003) proposes a new methodology to circumvent this problem, namely the timeless perspective solution. However, one main limitation is that it is not yet empirically implementable. In this paper, we develop a new methodology to compute initial values of the Lagrange multipliers in order to implement the timeless-perspective solution. In so doing, we also provide a generalization of the Ramsey and timeless-perspective problems. We apply our results to a small-open economy model in Canada.
Subjects:Monetary policy framework
JEL:C6
E5
E6
Document Type:Working Paper
Appears in Collections:Bank of Canada Working Papers

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