Robust Monetary Policy Under Model Uncertainty in a Small Model of the U.S. Economy
Author | : Alexei Onatski |
Publisher | : |
Total Pages | : 33 |
Release | : 2000 |
ISBN-10 | : OCLC:247535494 |
ISBN-13 | : |
Rating | : 4/5 (94 Downloads) |
Download or read book Robust Monetary Policy Under Model Uncertainty in a Small Model of the U.S. Economy written by Alexei Onatski and published by . This book was released on 2000 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines monetary policy in Rudebusch and Svensson's (1999) two equation macroeconomic model when the policymaker recognizes that the model is an approximation and is uncertain about the quality of that approximation. It is argued that the minimax approach of robust control provides a general and tractable alternative to the conventional Bayesian decision theoretic approach. Robust control techniques are used to construct robust monetary policies. In most (but not all) cases, these robust policies are more aggressive than the optimal policies absent model uncertainty. The specific robust policies depend strongly on the formation of model uncertainty used, and we make some suggestions about which formulation is most relevant for monetary policy applications.