A copy of this work was available on the public web and has been preserved in the Wayback Machine. The capture dates from 2020; you can also visit the original URL.
The file type is
This paper proposes a method and a toolkit for solving optimal policy with imperfect commitment. As opposed to the existing literature, our method can be employed in the medium-and large-scale models typically used in monetary policy. We apply our method to the Smets and Wouters model [American Economic Review 97(3), 586-606 (2007) ], for which we show that imperfect commitment has relevant implications for interest rate setting, the sources of business cycle fluctuations, and welfare.doi:10.2139/ssrn.1735395 fatcat:gssqltuxabgyplk6lignztvtky