Modeling Model Uncertainty / Alexei Onatski, Noah Williams.

Format:

Book

Author/Creator:

Onatski, Alexei.

Contributor:

National Bureau of Economic Research.

Williams, Noah.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9566.

NBER working paper series no. w9566

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

Recently there has been a great deal of interest in studying monetary policy under model uncertainty. We point out that different assumptions about the uncertainty may result in drastically different robust' policy recommendations. Therefore, we develop new methods to analyze uncertainty about the parameters of a model, the lag specification, the serial correlation of shocks, and the effects of real time data in one coherent structure. We consider both parametric and nonparametric specifications of this structure and use them to estimate the uncertainty in a small model of the US economy. We then use our estimates to compute robust Bayesian and minimax monetary policy rules, which are designed to perform well in the face of uncertainty. Our results suggest that the aggressiveness recently found in robust policy rules is likely to be caused by overemphasizing uncertainty about economic dynamics at low frequencies.

Notes:

Print version record

March 2003.