Robustly Optimal Instrument Rules and Robust Control: An Equivalence Result

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Robustly Optimal Instrument Rules and Robust Control: An Equivalence Result

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Walsh, Carl E

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Carl Walsh

Abstract

Giannoni and Woodford (2003a, 2003b) and Hansen and Sargent (2003, 2004) have recently developed different notions of robust policy, and both approaches have been applied in the context of optimal monetary policy. In this note, I demonstrate that both approaches lead to exactly the same implicit instrument rule for the policy maker in a standard, forward-looking, new Keynesian model. Despite the equivalence of the policy rules, the two approaches predict different macroeconomic behavior because of difference assumptions about the formation of expectations.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 36 (2004)
Issue (Month): 6 (December)
Pages: 1105-13
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Handle: RePEc:mcb:jmoncb:v:36:y:2004:i:6:p:1105-13

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Leitemo, Kai & Söderström , Ulf, 2004. "Robust monetary policy in the New-Keynesian framework," Research Discussion Papers 31/2004, Bank of Finland. [Downloadable!]
Other versions:
- Kai Leitemo & Ulf Soderstrom, 2004. "Robust Monetary Policy in the New-Keynesian Framework," Working Papers 273, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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- Leitemo, Kai & S?Derstr?M, Ulf, 2008. "Robust Monetary Policy In The New Keynesian Framework," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S1), pages 126-135, April. [Downloadable!]
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Other versions:
- Svensson, Lars O, 2005. "Monetary Policy with Judgment: Forecast Targeting," MPRA Paper 819, University Library of Munich, Germany. [Downloadable!]
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Guenter W. Beck & Volker Wieland, 2008. "Central Bank misperceptions and the role of money in interest rate rules," Working Paper Series 967, European Central Bank. [Downloadable!]
Other versions:
- Beck, Günter & Wieland, Volker, 2008. "Central Bank Misperceptions and the Role of Money in Interest Rate Rules," CEPR Discussion Papers 6947, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Volker Wieland & Günter W. Beck, 2008. "Central Bank Misperceptions and the Role of Money in Interest Rate Rules," CFS Working Paper Series 2008/25, Center for Financial Studies. [Downloadable!]
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- Beck, Guenter W. & Wieland, Volker, 2008. "Central bank misperceptions and the role of money in interest-rate rules," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages S1-S17, October. [Downloadable!] (restricted)
Lars E.O. Svensson, 2005. "Targeting versus instrument rules for monetary policy: what is wrong with McCallum and Nelson?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 613-626. [Downloadable!]
Eleftherios SPYROMITROS & Li QIN, 2006. "Central bank transparency about model uncertainty and wage setters," Economics Bulletin, Economics Bulletin, vol. 5(18), pages 1-5. [Downloadable!]
Roberto M. Billi, 2007. "Optimal inflation for the U.S," Research Working Paper RWP 07-03, Federal Reserve Bank of Kansas City. [Downloadable!]
Lars E.O. Svensson, 2004. "Targeting Rules vs. Instrument Rules for Monetary Policy: What is Wrong with McCallum and Nelson?," NBER Working Papers 10747, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

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