Parameters' Instability, Model Uncertainty and Optimal Monetary Policy
Author: Carlo A. Favero
Publisher:
Published: 2001
Total Pages: 0
ISBN-13:
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Author: Carlo A. Favero
Publisher:
Published: 2001
Total Pages: 0
ISBN-13:
DOWNLOAD EBOOKAuthor: Richard T. Froyen
Publisher: Edward Elgar Publishing
Published: 2019
Total Pages: 466
ISBN-13: 1784717193
DOWNLOAD EBOOKThis book provides a thorough survey of the model-based literature on optimal monetary in a stochastic setting. The survey begins with the literature of the 1970s which focused on the information problem in policy design and extends to the New Keynesian approach of the 1990s which centered on evaluating alternative targeting strategies. New to the second edition is consideration of research since the world financial crisis on the role of financial markets and institutions in the conduct of monetary policy.
Author: Carlo A. Favero
Publisher:
Published: 2005
Total Pages: 30
ISBN-13:
DOWNLOAD EBOOKAuthor: Geoffrey Shuetrim
Publisher:
Published: 2003
Total Pages: 0
ISBN-13:
DOWNLOAD EBOOKThis paper uses a simple model of the Australian economy to empirically examine the consequences of parameter uncertainty for optimal monetary policy. Optimal policy responses are derived for a monetary authority that targets inflation and output stability. Parameter uncertainty is characterised by the estimated distribution of the model coefficient estimates. Learning is ruled out, so the monetary authority can commit to its ex ante policy response. For certain shocks, taking account of parameter uncertainty can recommend more, rather than less, activist use of the policy instrument. While this finding is specific to the model specification, parameter estimates and the shocks analysed, it contrasts with the widely held belief that the generic implication of parameter uncertainty is a more conservative policy.
Author: Marc Paolo Giannoni
Publisher:
Published: 2001
Total Pages: 388
ISBN-13:
DOWNLOAD EBOOKAuthor: Lars E. O. Svensson
Publisher:
Published: 2005
Total Pages: 84
ISBN-13:
DOWNLOAD EBOOK"We examine optimal and other monetary policies in a linear-quadratic setup with a relatively general form of model uncertainty, so-called Markov jump-linear-quadratic systems extended to include forward-looking variables. The form of model uncertainty our framework encompasses includes: simple i.i.d. model deviations; serially correlated model deviations; estimable regime-switching models; more complex structural uncertainty about very different models, for instance, backward- and forward-looking models; time-varying central-bank judgment about the state of model uncertainty; and so forth. We provide an algorithm for finding the optimal policy as well as solutions for arbitrary policy functions. This allows us to compute and plot consistent distribution forecasts---fan charts---of target variables and instruments. Our methods hence extend certainty equivalence and "mean forecast targeting" to more general certainty non-equivalence and "distribution forecast targeting.""--National Bureau of Economic Research web site
Author: George W. Evans
Publisher:
Published: 2001
Total Pages: 48
ISBN-13:
DOWNLOAD EBOOKAuthor: Efrem Castelnuovo
Publisher:
Published: 2001
Total Pages: 28
ISBN-13:
DOWNLOAD EBOOKAuthor: Marc Paolo Giannoni
Publisher:
Published: 2006
Total Pages: 52
ISBN-13:
DOWNLOAD EBOOKThis paper characterizes a robust optimal policy rule in a simple forward-looking model, when the policymaker faces uncertainty about model parameters and shock processes. We show that the robust optimal policy rule is likely to involve a stronger response of the interest rate to fluctuations in inflation and the output gap than is the case in the absence of uncertainty. Thus parameter uncertainty alone does not necessarily justify a small response of monetary policy to perturbations. However uncertainty may amplify the degree of "super-inertia" required by optimal monetary policy. We finally discuss the sensitivity of the results to alternative assumptions.
Author: Davide Debortoli
Publisher: International Monetary Fund
Published: 2017-07-21
Total Pages: 56
ISBN-13: 1484311752
DOWNLOAD EBOOKYes, it makes a lot of sense. This paper studies how to design simple loss functions for central banks, as parsimonious approximations to social welfare. We show, both analytically and quantitatively, that simple loss functions should feature a high weight on measures of economic activity, sometimes even larger than the weight on inflation. Two main factors drive our result. First, stabilizing economic activity also stabilizes other welfare relevant variables. Second, the estimated model features mitigated inflation distortions due to a low elasticity of substitution between monopolistic goods and a low interest rate sensitivity of demand. The result holds up in the presence of measurement errors, with large shocks that generate a trade-off between stabilizing inflation and resource utilization, and also when ensuring a low probability of hitting the zero lower bound on interest rates.