Congressional intent concerning the independence of the Federal Reserve matters because it protects the public from the politicization of monetary policy. Attempts to subordinate monetary policy to the President could easily end up in front of the Supreme Court. The outcome of such a case would...

This paper presents a framework for understanding the limits that exist in optimal policy design in dynamic contexts. We consider the design of policies in the context of dynamic linear models. Fundamental design limits exist for policy rules in such environments in the sense that any policy...

A decision maker constructs a convex set of nonnegative martingales to use as likelihood ratios that represent parametric alternatives to a baseline model and also non-parametric models statistically close to both the baseline model and the parametric alternatives. Max-min expected utility over...

This paper proposes a tractable way to model boundedly rational dynamic programming. The agent uses an endogenously simplified, or "sparse," model of the world and the consequences of his actions and acts according to a behavioral Bellman equation. The framework yields a behavioral version of...

We apply numerical dynamic programming to multi-asset dynamic portfolio optimization problems with proportional transaction costs. Examples include problems with one safe asset plus two to six risky stocks, and seven to 360 trading periods in a finite horizon problem. These examples show that it...

We argue that deep learning provides a promising avenue for taming the curse of dimensionality in quantitative economics. We begin by exploring the unique challenges posed by solving dynamic equilibrium models, especially the feedback loop between individual agents' decisions and the aggregate...

This paper derives the optimal monetary-policy rule in a simple model with anchored inflation expectations and an effective lower bound (ELB) on interest rates, assuming a long-run inflation goal of 2%. With fully anchored expectations, the optimal policy is a version of average inflation...

The Random Utility Model (RUM) is a workhorse model for valuing new products or changes in public goods. But RUMs have been faulted along two lines. First, for including idiosyncratic errors that imply unreasonably high values for new alternatives and unrealistic substitution patterns. Second,...

This paper considers growth and fluctuations in a standard Overlapping Generations (OLG) model with rational expectations, with land (a non-produced asset), credit frictions, and endogenous growth. Under plausible conditions, there can be multiple momentary equilibria, with the multiplicity...

There is a rapidly advancing literature on the macroeconomics of climate change. This review focuses on developments in the construction and solution of structural integrated assessment models (IAMs), highlighting the marriage of state-of-the-art natural science with general equilibrium theory....