NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Elements of a Theory of Design Limits to Optimal Policy

William A. Brock, Steven N. Durlauf

NBER Working Paper No. 10495
Issued in May 2004
NBER Program(s):   EFG

This paper presents a framework for understanding the limits that exist in optimal policy design in dynamic contexts. We consider the design of policies in the context of dynamic linear models. Fundamental design limits exist for policy rules in such environments in the sense that any policy rule embodies tradeoffs between the magnitudes of different frequency-specific components of the variance. Hence policies that are effective in eliminating low frequency variance components of a state variable can only do so at the cost of exacerbating high frequency variance components, and vice versa. Examples of the implications of such tradeoffs are considered.

download in pdf format
   (260 K)

email paper

This paper is available as PDF (260 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10495

Published: William A. Brock & Steven N. Durlauf, 2004. "Elements of a Theory of Design Limits to Optimal Policy," Manchester School, University of Manchester, vol. 72(s1), pages 1-18, 09.

Users who downloaded this paper also downloaded these:
Brock and Durlauf w8041 Growth Economics and Reality
Brock, Durlauf, and Rondina w14357 Design Limits and Dynamic Policy Analysis
Brock, Durlauf, and West w10025 Policy Evaluation in Uncertain Economic Environments
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us