See, for example, Svensson and Tetlow (2005). For a concise description of its computation in conjunction with the FRB/US model, see Brayton, Laubach, and Reifschneider (2014b); for an exposition of the use of optimal control, see Yellen (2012). 21 Optimal policy simulations assume that policymakers do not doubt their model or the baseline outlook.
In addition, the particular optimal policy shown in figure 3 is known as a “commitment policy,” meaning that it is assumed that policymakers can bind themselves and future committees to follow the strategy--but not necessarily the precise policy rule prescriptions--that comprises the optimal plan.