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Title: Anticipated Alternative Instrument-Rate Paths in Policy Simulations

Author(s): Stefan Laséen and Lars E.O. Svensson

Publication Date: January 2011

Keyword(s): instrument rules, Optimal monetary policy, optimal policy projections and policy rules

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Laséen, S and Svensson, L. 2011. 'Anticipated Alternative Instrument-Rate Paths in Policy Simulations'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8176