Certainty Equivalence and the Non-Vertical Long Run Phillips-Curve
9 Pages Posted: 6 Nov 1998
Date Written: July 22, 1998
Abstract
The certainty equivalence principle states that only the mean of a random variable is relevant to a decision maker facing uncertainty. This principle simplifies the application of the idea of rational expectations considerably. Yet, certainty equivalence does not in general apply outside of the special case of quadratic objective function subject to linear constraints. I use the standard augmented Phillips-Curve to demonstrate the significant effects that occur with the breakdown of certainty equivalence.
JEL Classification: D82, E24, E31
Suggested Citation: Suggested Citation
Lengwiler, Yvan, Certainty Equivalence and the Non-Vertical Long Run Phillips-Curve (July 22, 1998). Available at SSRN: https://ssrn.com/abstract=121431 or http://dx.doi.org/10.2139/ssrn.121431
Do you have a job opening that you would like to promote on SSRN?
Feedback
Feedback to SSRN
If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday.
