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Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 03 de 2002


The Consistency of Optimal Policy in Stochastic Rational Expectations Models

David Backus
Stern School of Business, New York University

John Driffill
Department of Economics, Birkbeck College

This paper extends the work of Barro and Gordon (1983) to a wider class of economic models and obtains results for general linear dynamic rational expectations models which may have additive shocks. We use the framework of dynamic games played over an infinite horizon. By contrast with our earlier work on macreoconomic policy (Backus and Driffill, 1985a and b) we here assume that the objectives of all the players in the game are common knowledge.

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