@techreport{NBERt0029,
 title = "Optimal and Time-Consistent Polices in Continuous Time Rational Expectations Models",
 author = "Willem H. Buiter",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Technical Working Paper Series",
 number = "29",
 year = "1983",
 month = "August",
 URL = "http://www.nber.org/papers/t0029",
 abstract = {In this note the method of Hamiltonian dynamics is used to characterize the time-consistent solution to the optimal control problem in a deterministic continuous time rational expectations model. A linear quadratic example based on the work of Miller and Salmon is used for simplicity. To derive the time-consistent rational expectations (or subgame-perfect) solution we first characterize the optimal solution made familiar e.g. through the work of Calvo. The time-consistent solution is then obtained by modifying the optimal solution through the requirement that the co-state variables (shadow prices) of the non-predetermined variables be zero at each instant. Existing solution methods and computational algorithms can be used to obtain the behaviour of the system under optimal policy and under time-consistent policy.},
}