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- Title
ANALYTICAL POLICY DESIGN UNDER RATIONAL EXPECTATIONS.
- Authors
Whiteman, Charles H.
- Abstract
The formulation of optimal policy in linear rational expectations models is studied using methods analogous to the classical design techniques utilized in linear systems engineering. Specifically, the policy-maker's present-value-like objective function is converted, using the convolution transform, to an equivalent frequency domain, "spectral utility" function. Then the residue calculus and Wiener-Hopf methods are used to maximize spectral utility through the choice of a complex function which represents a sequence of distributed lag coefficients to be applied to current and past values of instrument variables. The solution to this problem is a closed form expression for the decision rule of the dominant player in a particular type of linear-quadratic dynamic game.
- Subjects
RATIONAL expectations (Economic theory); LINEAR systems; UTILITY theory; ECONOMIC forecasting; TIME &; economic reactions; UNCERTAINTY; MATHEMATICAL economics; ECONOMICS; ECONOMETRICS
- Publication
Econometrica, 1986, Vol 54, Issue 6, p1387
- ISSN
0012-9682
- Publication type
Article
- DOI
10.2307/1914305