Ordering policy rules with an unconditional welfare measure

Vladislav Damjanovic, Tatiana Damjanovic, Charles Nolan

    Research output: Working paper


    The unconditional expectation of social welfare is often used to assess alternative macroeconomic policy rules in applied quantitative research. It is shown that it is generally possible to derive a linear-quadratic problem that approximates the exact non-linear problem where the unconditional expectation of the objective is maximised and the steady-state is distorted. Thus, the measure of policy performance is a linear combination of second moments of economic variables which is relatively easy to compute numerically, and can be used to rank alternative policy rules. The approach is applied to a simple Calvo-type model under various monetary policy rules.
    Original languageEnglish
    PublisherUniversity of St Andrews
    Number of pages36
    Publication statusPublished - Mar 2011

    Publication series

    NameSchool of Economics & Finance Discussion Paper
    PublisherUniversity of St Andrews
    ISSN (Print)0962-4031
    ISSN (Electronic)2055-303X


    • Linear-quadratic approximation
    • unconditional expectations
    • optimal monetary policy
    • ranking simple policy rules


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