TY - UNPB
T1 - Linear-Quadratic Approximation to Unconditionally Optimal Policy: The Distorted Steady-State
AU - Damjanovic, Tatiana
AU - Damjanovic, Vladislav
AU - Nolan, Charles
PY - 2008/2
Y1 - 2008/2
N2 - This paper establishes that one can generally obtain a purely quadratic approximation to the unconditional expectation of social welfare when the steady-state is distorted. A specific example is provided employing a canonical New Keynesian model. Unlike in the non-distorted steady state case, the approximate loss function is not defined simply over terms in inflation and output. Furthermore, optimal steady state inflation and the nominal interest rate are positive
AB - This paper establishes that one can generally obtain a purely quadratic approximation to the unconditional expectation of social welfare when the steady-state is distorted. A specific example is provided employing a canonical New Keynesian model. Unlike in the non-distorted steady state case, the approximate loss function is not defined simply over terms in inflation and output. Furthermore, optimal steady state inflation and the nominal interest rate are positive
UR - http://ideas.repec.org/p/san/cdmawp/0804.html
M3 - Working paper
T3 - Centre for Dynamic Macroeconomic Analysis, Working Paper
SP - 1
EP - 28
BT - Linear-Quadratic Approximation to Unconditionally Optimal Policy: The Distorted Steady-State
ER -