Cookies?
Library Header Image
LSE Research Online LSE Library Services

Time-consistently undominated policies

Brendon, Charles and Ellison, Martin (2018) Time-consistently undominated policies. CFM Discussion Paper Series (CFM-DP2018-01). Centre For Macroeconomics, London, UK.

[img]
Preview
Text - Published Version
Download (705kB) | Preview

Abstract

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 su cient conditions for this to be true, and show that these are equivalent to a straightforward but signi cant change to the fi rst-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.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Discussio...
Additional Information: © 2018 The Authors
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, and Operations
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Sets: Research centres and groups > Centre for Macroeconomics
Date Deposited: 13 Mar 2018 10:13
Last Modified: 12 Mar 2019 00:03
URI: http://eprints.lse.ac.uk/id/eprint/87176

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics