Which Parameters Drive Approximation Inaccuracies?

This paper identifies parameters responsible for welfare reversals when the basic New Keynesian model is approximated. In our setting, a reversal occurs when the Ramsey policy under timeless perspective commitment ceases to be dominant against the Taylor rule after approximating the model. We find that the parameters involved are the degree of persistence in the autoregressive shock process and the labor elasticity of real output.

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Year of publication:	2010-12-16
Authors:	Sienknecht, Sebastian
Institutions:	Wirtschaftswissenschaftliche Fakultät, Friedrich-Schiller-Universität Jena
Subject:	Optimal Monetary policy \| Approximations \| Welfare Analysis \| Timeless Perspective

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Extent:	application/pdf
Series:	Jena Economic Research Papers.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 2010-093
Classification:	E30 - Prices, Business Fluctuations, and Cycles. General ; E52 - Monetary Policy (Targets, Instruments, and Effects) ; E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Source:	RePEc - Research Papers in Economics

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