Model Uncertainty and Policy Evaluation: Some Theory and Empirics / William A. Brock, Steven N. Durlauf, Kenneth D. West.

Format:

Book

Author/Creator:

Brock, William A.

Contributor:

National Bureau of Economic Research.

Durlauf, Steven N.

West, Kenneth D.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10916.

NBER working paper series no. w10916

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Model Uncertainty and Policy Evaluation

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

This paper explores ways to integrate model uncertainty into policy evaluation. We first describe a general framework for the incorporation of model uncertainty into standard econometric calculations. This framework employs Bayesian model averaging methods that have begun to appear in a range of economic studies. Second, we illustrate these general ideas in the context of assessment of simple monetary policy rules for some standard New Keynesian specifications. The specifications vary in their treatment of expectations as well as in the dynamics of output and inflation. We conclude that the Taylor rule has good robustness properties, but may reasonably be challenged in overall quality with respect to stabilization by alternative simple rules that also condition on lagged interest rates, even though these rules employ parameters that are set without accounting for model uncertainty.

Notes:

Print version record

November 2004.