Free choice and uncertainty in policy optimization with an econometric model

摘要

The use of dynamic optimization should be to guide, not to command the economic policymaker. This paper develops previous work on the Bank of Canada's national econometric model RDX2, to define an indifference set for the optimal policy based on a confidence set for selected model disturbances and a sensitivity analysis of the calculated optimum. Within the indifference set a policy may be chosen on other grounds, and still represent whatever wisdom is embodied in the model and the optimization.