Optimal policy with general signal extraction
Mostra el registre complet Registre parcial de l'ítem
- dc.contributor.author Hauk, Esther
- dc.contributor.author Lanteri, Andrea
- dc.contributor.author Marcet, Albert
- dc.date.accessioned 2021-03-26T11:24:25Z
- dc.date.available 2021-03-26T11:24:25Z
- dc.date.issued 2019-11
- dc.description.abstract We study optimal policy when the planner has partial information in a general setup where observed signals are endogenous to policy. In this context, signal extraction and policy have to be determined jointly. We derive a general non-standard first order condition of optimality from first principles and we use it to find numerical solutions. This first order condition allows us to identify widely-used special cases in the literature in which the signal extraction and the optimal decision problems can be solved separately, using the well-known separation principle. Our general setup, which does not feature any separation, is relevant for most available dynamic models in macro. We apply our results to a model of fiscal policy and show that optimal taxes are often a very non-linear function of observed hours, calling for tax smoothing in normal times, but for a strong fiscal reaction to output in a deeper recession. This non-linearity arises because signal extraction interacts differently with optimal policy depending on the range of observed signals. The non-linearity is stronger near the top of the Laffer curve or near a debt limit. In a fully dynamic model taxes react with a delay to adverse deficit shocks due to partial information, and this can lead to larger low frequency fluctuations.ca
- dc.format.mimetype application/pdf*
- dc.identifier.uri http://hdl.handle.net/10230/46964
- dc.language eng
- dc.language.iso engca
- dc.relation.ispartofseries Working Papers CREI (Centre de Recerca en Economia Internacional);
- dc.rights.accessRights info:eu-repo/semantics/openAccessca
- dc.subject.other Optimal policyca
- dc.subject.other Partial informationca
- dc.subject.other Separationca
- dc.subject.other Calculus of variationsca
- dc.subject.other Fiscal policyca
- dc.title Optimal policy with general signal extractionca
- dc.type info:eu-repo/semantics/workingPaperca