Robust Monetary Policy Under Model Uncertainty in a Small Model of the U.S. Economy / Alexei Onatski, James H. Stock.

Format:

Book

Author/Creator:

Onatski, Alexei.

Contributor:

National Bureau of Economic Research.

Stock, James H.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7490.

NBER working paper series no. w7490

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Summary:

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.

Notes:

Print version record

January 2000.