Macro Technical Paper No. 4
By Andrea Alati, Martín Arazi, John Barrdear, Andrew Gimber, Elspeth Hughes, Lien Laureys, Simon Lloyd, Ozgen Ozturk, Jack Page, Kate Reinold, Eric Tong, Matthew Tong and Matt Waldron
Optimal policy projections (OPPs) and simple instrument rules can be used to compare macroeconomic projections under different assumptions about monetary policy. This paper explains how both are used as inputs to the monetary policy process at the Bank of England. The underlying algorithms for endogenous policy analysis are flexible and can be applied to a range of macroeconomic models. Using a medium-scale DSGE model for the UK economy, we first explain the intuition underpinning the macroeconomic outcomes that OPPs and simple rules deliver. We then highlight the uses, as well as some challenges, of endogenous policy analysis in practice.
Tools for endogenous monetary policy analysis: optimal projections and instrument rules
