Optimal stabilization policy with instruments of differing frequency (Q1094314)

The paper presents an alternative approach to an optimal stabilization policy of linear econometric models whose policy instruments are subject to different frequency of adjustment. The fiscal policy is to be adjusted only at the beginning of the fiscal year, the monetary policy can be continuously revisable throughout the planning horizon. For the linear model with constant coefficients a combination of open-loop policies applied for the variables of lower frequency and closed-loop policies applied for the variables of higher frequency is suggested as a solution concept. For the random coefficient linear model the optimal solution is obtained using a feedback form of the open-loop policies.