Solution and estimation of RE macromodels with optimal policy |
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| Affiliation: | 1. Institut für Geologie, Mineralogie und Geophysik, Ruhr-Universität Bochum, D-44780 Bochum, Germany;2. Institute of Geosciences, Johannes Gutenberg University, D-55128 Mainz, Germany;1. V.S. Sobolev Institute of Geology and Mineralogy, Siberian Branch of the Russian Academy of Sciences, pr. Akademika Koptyuga 3, Novosibirsk, 630090, Russia;2. L.V. Kirensky Institute of Physics, Siberian Branch of the Russian Academy of Sciences, Akademgorodok, 50, Building 38, Krasnoyarsk, 660036, Russia;3. Novosibirsk State University, ul. Pirogova 2, Novosibirsk, 630090, Russia;4. Siberian Federal University, pr. Svobodnyi 79, Krasnoyarsk, 660041, Russia |
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| Abstract: | Macro models of monetary policy typically involve forward looking behavior. Except in rare circumstances, we have to apply some numerical method to find the optimal policy and the rational expectations equilibrium. This paper summarizes a few useful methods, and shows how they can be combined with a Kalman filter to estimate the deep model parameters with maximum likelihood. Simulations of a macro model with staggered price setting, interest rate elastic output, and optimal monetary policy illustrate the properties of this estimation approach. |
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