Robust Monetary Policy Under Model Uncertainty in a Small Model of the U.S. Economy
Robust Monetary Policy Under Model Uncertainty in a Small Model of the U.S. Economy

Author: Alexei Onatski

Publisher:

Published: 2000

Total Pages: 33

ISBN-13:

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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.

Robustness
Robustness

Author: Lars Peter Hansen

Publisher: Princeton University Press

Published: 2016-06-28

Total Pages: 453

ISBN-13: 0691170975

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The standard theory of decision making under uncertainty advises the decision maker to form a statistical model linking outcomes to decisions and then to choose the optimal distribution of outcomes. This assumes that the decision maker trusts the model completely. But what should a decision maker do if the model cannot be trusted? Lars Hansen and Thomas Sargent, two leading macroeconomists, push the field forward as they set about answering this question. They adapt robust control techniques and apply them to economics. By using this theory to let decision makers acknowledge misspecification in economic modeling, the authors develop applications to a variety of problems in dynamic macroeconomics. Technical, rigorous, and self-contained, this book will be useful for macroeconomists who seek to improve the robustness of decision-making processes.

Learning and Expectational Stability under Robust Monetary Policy
Learning and Expectational Stability under Robust Monetary Policy

Author: Sohei Kaihatsu

Publisher:

Published: 2009

Total Pages: 59

ISBN-13:

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In the last few years, several articles have been devoted to the study of model uncertainty in the New Keynesian model using robust control methods. Most studies have focused on how to design a robust monetary policy to take model uncertainty more seriously. Little attention has, however, been given to expectation formation under such a robust monetary policy. The purpose of this study is to explore the expectational stability under robust monetary policy when private expectations are formed by the adaptive learning technology. We find that the economy is determinate and stable under learning if (i) private agents' expectations are observable to the central bank and appropriately incorporated into its optimal policy rules, and (ii) the central bank's preference for robustness is sufficiently weak. It follows that it is important for the central bank to consider expectational stability when it implements a robust monetary policy.

Robust Versus Optimal Rules in Monetary Policy
Robust Versus Optimal Rules in Monetary Policy

Author: International Monetary Fund

Publisher: International Monetary Fund

Published: 2004-06-01

Total Pages: 12

ISBN-13: 1451851944

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We provide a framework for analyzing the choice between optimal and robust monetary policy rules in the presence of paradigm uncertainty. We first discuss the conditions on uncertainty that render a robust rule preferable to an optimal rule. Second, we show how the degree of risk aversion of the policymaker increases the region in which the robust rule is preferred.

Optimal Monetary Policy under Uncertainty, Second Edition
Optimal Monetary Policy under Uncertainty, Second Edition

Author: Richard T. Froyen

Publisher: Edward Elgar Publishing

Published: 2019

Total Pages: 466

ISBN-13: 1784717193

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This 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.

Monetary Policy under Uncertainty
Monetary Policy under Uncertainty

Author: Oliver Sauter

Publisher: Springer Science & Business Media

Published: 2014-01-31

Total Pages: 223

ISBN-13: 365804974X

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Oliver Sauter analyzes three aspects of monetary policy under uncertainty. First he shows that the terms risk and uncertainty are often wrongly used as synonyms despite their different meanings. The second aspect is the proper examination and incorporation of uncertainty into a monetary policy framework. The author undertakes systematization with a closer look at each identified form of uncertainty. Thirdly, he focuses on the quantification of uncertainty from two different perspectives, either from a market perspective or from a central bank perspective.