AN ANALYSIS OF THE IMPACT OF FINITE HORIZONS ON MACROECONOMIC CONTROL

Macroeconomic control exercises using large-scale non-linear consistent expectations models necessarily employ a finite time horizon. By contrast, much of the analytic literature has focused on the linear-quadratic infinite horizon problem, for which closed form solutions are easy to derive and offe...

Full description

Saved in:
Bibliographic Details
Published in:Oxford economic papers 1995-01, Vol.47 (1), p.98-116
Main Authors: BLAKE, ANDREW P., WESTAWAY, PETER F.
Format: Article
Language:English
Subjects:
Active control
Differential equations, Linear
Econometric models
Economic models
Economic policy
Economic theory
Environmental policy
Inflation rates
Interest rates
Linear models
Macroeconomic modeling
Macroeconomic policy
Macroeconomics
Modeling
Non-linear models
Real exchange rates
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Macroeconomic control exercises using large-scale non-linear consistent expectations models necessarily employ a finite time horizon. By contrast, much of the analytic literature has focused on the linear-quadratic infinite horizon problem, for which closed form solutions are easy to derive and offer convenient interpretation. This paper examines the extent to which the imposed finite time horizon distorts the optimal policy. We compare the effects on the reputational time inconsistent solution with those on time consistent strategies using both a large non-linear consistent expectations model and a compact linearised version.
ISSN:0030-7653
1464-3812
DOI:10.1093/oxfordjournals.oep.a042165