Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 248: Anticipated Alternative Policy-Rate Paths in Policy Simulations

Stefan Laséen () and Lars E.O. Svensson ()
Additional contact information
Stefan Laséen: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Lars E.O. Svensson: Sveriges Riksbank, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Abstract: 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.

Keywords: Optimal monetary policy; instrument rules; policy rules; optimal policy projections

JEL-codes: E52; E58

36 pages, January 1, 2011

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