NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Anticipated Alternative Instrument-Rate Paths in Policy Simulations

Stefan Laséen, Lars E.O. Svensson

NBER Working Paper No. 14902
Issued in April 2009
NBER Program(s):   EFG   IFM   ME

This paper specifies a new convenient algorithm to construct policy projections conditional on alternative anticipated policy-rate paths in linearized dynamic stochastic general equilibrium (DSGE) models, such as Ramses, the Riksbank's main DSGE model. Such projections with anticipated policy-rate paths correspond to situations where the central bank transparently announces that it, conditional on current information, plans to implement a particular policy-rate path and where this announced plan for the policy rate is believed and then anticipated by the private sector. The main idea of the algorithm is to include among the predetermined variables (the "state" of the economy) the vector of nonzero means of future shocks to a given policy rule that is required to satisfy the given anticipated policy-rate path.

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This paper was revised on December 5, 2011

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Document Object Identifier (DOI): 10.3386/w14902

Published: “Anticipated Alternative Instrument-Rate Paths in Policy Simulations” (with Stefan Laséen, Sveriges Riksbank), revised May 2011. International Journal of Central Banking 7(3) (2011) 1-35

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