Optimal Monetary Policy under Discretion

This package computes optimal monetary policy under discretion in a rational-expectations model.

This package computes the solution coefficients for the optimal linear quadratic monetary policy problem under discretion using the algorithm proposed by Richard Dennis in his article:
"Optimal Policy in Rational Expectations Models: New Solution Algorithms" published in Macroeconomic Dynamics 11(1), February 2007, pp. 31-55.

The routines follow the notation used in the paper.

I have also included an example based on the macroeconomic model (equations 12 and 13) used by Frederico S. Finan and Robert Tetlow, 1999, "Optimal control of large, forward-looking models efficient solutions and two examples", Finance and Economics Discussion Series 1999-51, Board of Governors of the Federal Reserve System

IMPORTANT NOTICE: This package makes use of dsyldouble.m and doubles.m. These functions compute the solution of a Sylvester equation system using the doubling algorithm. They can be freely downloaded from:

http://www.math.niu.edu/~anderson/ahms/algorithms/dsyldouble.m

http://www.math.niu.edu/~anderson/ahms/algorithms/doubles.m