nep-cmp New Economics Papers
on Computational Economics
Issue of 2005‒09‒02
two papers chosen by
Stan Miles
York University

  1. The Method of Endogenous Gridpoints for Solving Dynamic Stochastic Optimization Problems By Christopher D. Carroll
  2. A Quantitative Exploration of the Opportunistic Approach to Disinflation By Yunus Aksoy; Athanasios Orphanides; David Small; Volker Wieland; David Wilcox

  1. By: Christopher D. Carroll (Department of Economics, The Johns Hopkins University)
    Abstract: This paper introduces a method for solving numerical dynamic stochastic optimization problems that avoids rootfinding operations. The idea is applicable to many microeconomic and macroeconomic problems, including life cycle, buffer-stock, and stochastic growth problems. Software is provided.
    Keywords: Dynamic optimization, precautionary saving, stochastic growth model, endogenous gridpoints, liquidity constraints
    JEL: C6 D9 E2
    Date: 2005–01–18
  2. By: Yunus Aksoy (School of Economics, Mathematics and Statistics, Birkbeck College, University of London); Athanasios Orphanides (Board of Governors of the Federal Reserve System, Washington); David Small (Board of Governors of the Federal Reserve System, Washington); Volker Wieland (Goethe University of Frankfurt, CEPR, and Center for Financial Studies); David Wilcox (Board of Governors of the Federal Reserve System, Washington)
    Abstract: Under a conventional policy rule, a central bank adjusts its policy rate linearly according to the gap between inflation and its target, and the gap between output and its potential. Under “the opportunistic approach to disinflation” a central bank controls inflation aggressively when inflation is far from its target, but concentrates more on output stabilization when inflation is close to its target, allowing supply shocks and unforeseen fluctuations in aggregate demand to move inflation within a certain band. We use stochastic simulations of a small-scale rational expectations model to contrast the behavior of output and inflation under opportunistic and linear rules.
    Keywords: Inflation targeting, monetary policy, interest rates, policy rules, disinflation
    JEL: E31 E52 E58 E61
    Date: 2005–01–19

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