Countercyclical policy possible Make sure rule is robust across alternative model specifications
Robust Monetary Policy: An Overview
Introduction
Outline
References
These lectures
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Optimal monetary policy with uncertainty
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How to design robust policy
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CB faces uncertainty and tries to design robust policy Private sector knows true model and understands the central bank’s policy
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No learning or experimentation
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Ad hoc quadratic loss function
Robust Monetary Policy: An Overview
Introduction
Outline
Outline
1. Theory: Different approaches in simple model I I I
Shock uncertainty: Certainty equivalence Parameter uncertainty Unspecified (Knightian) model uncertainty
2. Applications I I I
Robust rules with model and parameter uncertainty Data uncertainty Unspecified model uncertainty
Robust Monetary Policy: An Overview
References
Introduction
Outline
References
References
Friedman, Milton (1960), A Program for Monetary Stability , Fordham University Press, New York. ——— (1968), “The role of monetary policy,” American Economic Review , 58 (1), 1–17. Greenspan, Alan (2003), “Monetary policy under uncertainty,” Opening remarks at a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming. McCallum, Bennett T. (1988), “Robustness properties of a rule for monetary policy,” Carnegie-Rochester Conference Series on Public Policy , 29, 173–203.