On Linear-Quadratic Approximations
6 Pages Posted: 3 Aug 2006
Date Written: July 2006
We prove the generality of the methodology proposed in Benigno and Woodford (2006). We show that, even in the presence of a distorted steady state, it is always possible and relatively simple to obtain a purely quadratic approximation to the welfare measure. We also show that, in order to do so, the timeless perspective assumption is crucial.
Keywords: Linear-Quadratic Approximation, Distorted Steady State, Timeless Perspective
JEL Classification: C61, C63
Suggested Citation: Suggested Citation