Many recent papers, following Gali (1999), have found a negative response of employment to a positive technology shock identified as a permanent shock to labor productivity, contradicting the prediction of standard RBC models. In a recent paper, Christiano, Eichenbaum and Vigfusson (2003) get a...

This paper shows how to use optimal control theory to derive time-consistent optimal government policies in nonlinear dynamic general equilibrium models. It extends the insight of Cohen and Michel (1988), who showed that in _linear_ models time-consistent policies can be found by imposing a...

As it is now well known, in the framework of DSGE models taking into accounts agents expectations, the fully unconstrained optimal policy (the Ramsey policy) has the main drawback of being time inconsistent: the authority has an incentive to recompute the optimal policy in each period in order...