Partial Adjustment as Optimal Response in a Dynamic Brainard Model

University of Washington Economics Working Paper No. UWEC-2003-20

30 Pages Posted: 7 Oct 2003

Date Written: September 2003

Abstract

Uncertainty about the precise quantitative effect of policy is endemic in economics. In a classic paper, Brainard showed that in the face of model of multiplier uncertainty optimal policy is relatively conservative. I extend this work to a dynamic model and show in general that gradual adjustment is optimal and in the most simple case derive the classic partial adjustment model as the optimal response to shocks.

JEL Classification: C5, E0

Suggested Citation

Startz, Richard, Partial Adjustment as Optimal Response in a Dynamic Brainard Model (September 2003). University of Washington Economics Working Paper No. UWEC-2003-20, Available at SSRN: https://ssrn.com/abstract=449660 or http://dx.doi.org/10.2139/ssrn.449660

Richard Startz (Contact Author)

UCSB ( email )

Department of Economics
University of California
Santa Barbara, CA 93106-9210
United States
805-893-2895 (Phone)

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