TY  - JOUR
AU  - Svensson, Lars E.O.
AU  - Woodford, Michael
TI  - Indicator Variables for Optimal Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7953
PY  - 2000
Y2  - October 2000
DO  - 10.3386/w7953
UR  - http://www.nber.org/papers/w7953
L1  - http://www.nber.org/papers/w7953.pdf
N1  - Author contact info:
Lars E.O. Svensson
Department of Economics
Stockholm School of Economics
P.O. Box 6501
SE-11383 Stockholm
Sweden
E-Mail: Leosven@gmail.com

Michael Woodford
Department of Economics
Columbia University
420 W. 118th Street
New York, NY 10027
Tel: 212/854-1094
Fax: 212-854-8059
E-Mail: mw2230@columbia.edu
AB  - The optimal weights on indicators in models with partial information about the state of the economy and forward-looking variables are derived and interpreted, both for equilibria under discretion and under commitment. An example of optimal monetary policy with a partially observable potential output and a forward-looking indicator is examined. The optimal response to the optimal estimate of potential output displays certainty-equivalence, whereas the optimal response to the imperfect observation of output depends on the noise in this observation.
ER  -