Some questions in optimal policy of discretion and commitment

[jpfeifer]

1. See

Discretionary Policy in the Hybrid NKM - Preprocessing Error

Usually it follows from the problem setup. If you have a planner setting the interest rate, then obviously the interest rate is the instrument and the “omitted equation” is the policy rule for the interest rate.

2. In that case, you model may not be well-behaved. Try to find out whether a bounded solution exists in this case.
3. Which parameters are you talking about? Parameters are fixed objects.