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This paper aims at bridging the gap between recent theoretical progress in welfare& based optimal policy and its application to models suitable for policy analysis. With this purpose, the framework of Benigno and Woodford (2005b) with a linear&quadratic (LQ) approximation (in a timeless perspective) to the optimal policy problem is applied to monetary policy in two relatively standard models. Furthermore the applications are performed through a standardised algorithm that is suitable for being implemented for a broad class of models.

* The authors are grateful to Pierpaolo Benigno and Michael Woodford for fruitful discussions and com& ments. We thanks Marco Del Negro and Frank Smets for sharing codes of the Smets and Wouters model. Any errors or mistakes are the responsibility only of the authors. All views, conclusions and opinions expressed in the paper reflect solely those of the authors and not those of the European Central Bank.† E! mail address: filippo. altissimo@ ecb. int