Working Paper
Errors in the measurement of the output gap and the design of monetary policy
Reifschneider, David L.; Porter, Richard D.; Finan, Frederico; Orphanides, Athanasios; Tetlow, Robert J. (1999)
We exploit data on historical revisions to real-time estimates of the output gap to examine the implications of measurement error for the design of monetary policy, using the Federal Reserve's model of the U.S. economy, FRB/US. Measurement error brings about a substantial deterioration in economic performance, although the problem can be mitigated somewhat by reducing the coefficient on the output gap in policy rules. We also show that it is usually optimal to place some weight on the level of the output gap in the conduct of policy, but under extreme conditions it may be preferable to focus ...
Finance and Economics Discussion Series , Paper 1999-45

Working Paper
Optimal control of large, forward-looking models efficient solutions and two examples
Tetlow, Robert J.; Finan, Frederico (1999)
An optimal control tool is described that is particularly useful for computing rules of large-scale models where users might otherwise have difficulty determining the state vector a priori and where the inversion of large, sparse matrices is involved. A small-scale demonstration is presented, as are data on performance with the Board of Governors large-scale rational expectations macroeconometric model, FRB/US.
Finance and Economics Discussion Series , Paper 1999-51