NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Feedback and the Use of Current Information: The Use of General Linear Policy Rules in Rational Expectations Models

Willem H. Buiter

NBER Working Paper No. 335
Issued in April 1979
NBER Program(s):   ITI   IFM

The behavior of several stochastic dynamic rational expectations models is studied when policy behavior can be described by a linear rule. Four policy components are distinguished: a current response component, a feedback component, an open-loop component and a stochastic component. Policy is evaluated in terms of the current and asymptotic first and second moments of the state variables. The importance of distinguishing between variability and uncertainty is brought out. The conditional variance is argued to be the appropriate measure of uncertainty. The analysis is applied to a model of foreign exchange market intervention.

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Document Object Identifier (DOI): 10.3386/w0335

Published: (Published as "Saddlepoint Problems in Continuous Time Rational Expectations Models: A General Method and Some Macroeconomic Examples") Econometrica, Vol. 52, No. 3, (May 1984), pp. 665-680.

 
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