A Toolkit for Computing Constrained Optimal Policy Projections (COPPs)

This paper presents a toolkit for generating optimal policy projections. It makes five contributions. First, the requires minimal set of inputs: only baseline projection target and instrument variables impulse responses those to shocks. Second, it solves projections under commitment, limited-time discretion. Third, handles multiple instruments. Fourth, constraints on instruments such as lower bound rate an upper asset purchases. Fifth, allows alternative approaches address forward guidance puzzle. The that accompanies this is Dynare compatible, which facilitates its use. Examples replicate existing results in monetary literature illustrate usefulness highlighting trade-offs. We use analyse US at height Great Financial Crisis. Given Fed’s early-2009 macroeconomic projections, we find planned was close whereas more aggressive QE program would have been beneficial. JEL Classification: C61, C63, E52, E58