Design Limits and Dynamic Policy Analysis

50 Pages Posted: 23 Sep 2008 Last revised: 25 Sep 2010

See all articles by William A. Brock

William A. Brock

University of Wisconsin, Madison - Department of Economics; University of Missouri at Columbia - Department of Economics

Steven N. Durlauf

University of Chicago; National Bureau of Economic Research (NBER)

Giacomo Rondina

University of California, San Diego (UCSD)

Date Written: September 2008

Abstract

This paper characterizes the frequency domain properties of feedback control rules in linear systems in order to better understand how different policies affect outcomes frequency by frequency. We are especially concerned in understanding how reductions of variance at some frequencies induce increases in variance at others. Tradeoffs of this type are known in the control literature as design limits. Design limits are important in understanding the full range of effects of macroeconomic stabilization policies. We extend existing results to account for discrete time bivariate systems with rational expectations. Application is made to the evaluation of monetary policy rules.

Suggested Citation

Brock, William A. and Durlauf, Steven N. and Rondina, Giacomo, Design Limits and Dynamic Policy Analysis (September 2008). NBER Working Paper No. w14357. Available at SSRN: https://ssrn.com/abstract=1271389

William A. Brock

University of Wisconsin, Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706
United States
608-263-6655 (Phone)
608-263-3876 (Fax)

University of Missouri at Columbia - Department of Economics ( email )

118 Professional Building
Columbia, MO 65211
United States

Steven N. Durlauf (Contact Author)

University of Chicago ( email )

1155 East 60th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Giacomo Rondina

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0112
United States

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