Time-consistently undominated policies
Brendon, Charles
Ellison, Martin

Data: 2018
Resum: This paper proposes and characterises a new normative solution concept for Kydland and Prescott problems, allowing for a commitment device. A policy choice is dominated if either (a) an alternative exists that is superior to it in a time-consistent subdomain of the constraint set, or (b) an alternative exists that Pareto-dominates it over time. Policies may be time-consistently undominated where time-consistent optimality is not possible. We derive necessary and sufficient conditions for this to be true, and show that these are equivalent to a straightforward but significant change to the first-order conditions that apply under Ramsey policy. Time-consistently undominated policies are an order of magnitude simpler than Ramsey choice, whilst retaining normative appeal. This is illustrated across a range of examples.
Resum: The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
Ajuts: European Commission 649396
Drets: Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, la comunicació pública de l'obra i la creació d'obres derivades, fins i tot amb finalitats comercials, sempre i quan es reconegui l'autoria de l'obra original. Creative Commons
Llengua: Anglès
Col·lecció: Barcelona Graduate School of Economics. ADEMU working paper series
Col·lecció: ADEMU Working Paper Series ; 82
Document: Working paper
Matèria: Time consistency ; Undominated policy ; Ramsey policy

Adreça alternativa: https://hdl.handle.net/10230/34453


78 p, 749.6 KB

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 Registre creat el 2018-10-23, darrera modificació el 2022-07-09



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