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Monetary Policy with Imperfect Knowledge Author info | Abstract | Publisher info | Download info | Related research | Statistics Athanasios Orphanides
John C. Williams
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We examine the performance and robustness of monetary policy rules when the central bank and the public have imperfect knowledge of the economy and continuously update their estimates of model parameters. We find that versions of the Taylor rule calibrated to perform well under rational expectations with perfect knowledge perform very poorly when agents are learning and the central bank faces uncertainty regarding natural rates. In contrast, difference rules, in which the change in the interest rate is determined by the inflation rate and the change in the unemployment rate, perform well when knowledge is both perfect and imperfect. (JEL: E52) (c) 2006 by the European Economic Association.
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Article provided by MIT Press in its journal Journal of the European Economic Association .
Volume (Year): 4 (2006)
Issue (Month): 2-3 (04-05)
Pages: 366-375
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Handle: RePEc:tpr:jeurec:v:4:y:2006:i:2-3:p:366-375Contact details of provider: Web page: http://www.mitpressjournals.org/jeea
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Mccallum, Bennet T., 1988.
"Robustness properties of a rule for monetary policy ,"
Carnegie-Rochester Conference Series on Public Policy ,
Elsevier, vol. 29(1), pages 173-203, January.
[Downloadable!] (restricted)
Athanasios Orphanides & John C. Williams, 2003.
"Imperfect Knowledge, Inflation Expectations, and Monetary Policy ,"
NBER Working Papers
9884, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Athanasios Orphanides & John C. Williams, 2002.
"Imperfect knowledge, inflation expectations, and monetary policy ,"
Working Papers in Applied Economic Theory
2002-04, Federal Reserve Bank of San Francisco.
[Downloadable!] Athanasios Orphanides & John C. Williams, 2003.
"Imperfect Knowledge, Inflation Expectations, and Monetary Policy ,"
CFS Working Paper Series
2003/40, Center for Financial Studies.
[Downloadable!] Athanasios Orphanides & John C. Williams, 2002.
"Imperfect knowledge, inflation expectations, and monetary policy ,"
Finance and Economics Discussion Series
2002-27, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!] Athanasios Orphanides & John Williams, 2004.
"Imperfect Knowledge, Inflation Expectations, and Monetary Policy ,"
NBER Chapters ,
in: The Inflation-Targeting Debate, pages 201-246
National Bureau of Economic Research, Inc.
[Downloadable!] Athanasios Orphanides & John C. Williams, 2002.
"Robust monetary policy rules with unknown natural rates ,"
Working Papers in Applied Economic Theory
2003-01, Federal Reserve Bank of San Francisco.
[Downloadable!]
Other versions: Orphanides, Athanasios & Williams, John C., 2005.
"The decline of activist stabilization policy: Natural rate misperceptions, learning, and expectations ,"
Journal of Economic Dynamics and Control ,
Elsevier, vol. 29(11), pages 1927-1950, November.
[Downloadable!] (restricted)
Other versions:
Athanasios Orphanides & John C. Williams, 2004.
"The decline of activist stabilization policy: natural rate misperceptions, learning, and expectations ,"
International Finance Discussion Papers
804, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!] John C. Williams & Athanasios Orphanides, 2004.
"The Decline of Activist Stabilization Policy: Natural Rate Misperceptions, Learning, and Expectations ,"
Computing in Economics and Finance 2004
144, Society for Computational Economics.
[Downloadable!] Athanasios Orphanides & John C. Williams, 2004.
"The Decline of Activist Stabilization Policy: Natural Rate Misperceptions, Learning, and Expectations ,"
CFS Working Paper Series
2004/24, Center for Financial Studies.
[Downloadable!] Athanasios Orphanides & John C. Williams, 2003.
"The decline of activist stabilization policy: natural rate misperceptions, learning, and expectations ,"
Working Papers in Applied Economic Theory
2003-24, Federal Reserve Bank of San Francisco.
[Downloadable!] Orphanides, Athanasios & Williams, John C, 2005.
"The Decline of Activist Stabilization Policy: Natural Rate Misperceptions, Learning and Expectations ,"
CEPR Discussion Papers
4865, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Athanasios Orphanides & John C. Williams, 2004.
"The decline of activist stabilization policy: Natural rate misperceptions, learning and expectations ,"
Working Paper Series
337, European Central Bank.
[Downloadable!] A. Orphanides & J. Williams, 2003.
"The decline of activist stabilization policy: natural rate misperceptions, learning, and expectations ,"
Proceedings ,
Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!] Orphanides, Athanasios & Williams, John C, 2006.
"Inflation Targeting under Imperfect Knowledge ,"
CEPR Discussion Papers
5664, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted)
Other versions:
Athanasios Orphanides & John C. Williams, 2006.
"Inflation Targeting under Imperfect Knowledge ,"
Computing in Economics and Finance 2006
38, Society for Computational Economics.
Athanasios Orphanides & John C. Williams, 2006.
"Inflation targeting under imperfect knowledge ,"
Finance and Economics Discussion Series
2006-20, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!] Athanasios Orphanides & John C. Williams, 2006.
"Inflation targeting under imperfect knowledge ,"
Working Paper Series
2006-14, Federal Reserve Bank of San Francisco.
[Downloadable!] Athanasios Orphanides & John C. Williams, 2006.
"Inflation Targeting Under Imperfect Knowledge ,"
Working Papers Central Bank of Chile
398, Central Bank of Chile.
[Downloadable!] Athanasios Orphanides & John C. Williams, 2007.
"Inflation targeting under imperfect knowledge ,"
Economic Review ,
Federal Reserve Bank of San Francisco, pages 1-23.
[Downloadable!] John C. Williams, 2005.
"Robust estimation and monetary policy with unobserved structural change ,"
Proceedings ,
Board of Governors of the Federal Reserve System (U.S.), pages 53-81.
[Downloadable!]
Other versions: Athanasios Orphanides & John C. Williams, 2003.
"Inflation scares and forecast-based monetary policy ,"
Working Paper
2003-21, Federal Reserve Bank of Atlanta.
[Downloadable!]
Other versions:
Athanasios Orphanides & John C. Williams, 2003.
"Inflation scares and forecast-based monetary policy ,"
Finance and Economics Discussion Series
2003-41, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!] Athanasios Orphanides & John C. Williams, 2003.
"Inflation scares and forecast-based monetary policy ,"
Working Papers in Applied Economic Theory
2003-11, Federal Reserve Bank of San Francisco.
[Downloadable!] Orphanides, Athanasios & Williams, John C, 2005.
"Inflation Scares and Forecast-Based Monetary Policy ,"
CEPR Discussion Papers
4844, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Athanasios Orphanides & John C. Williams, 2005.
"Inflation scares and forecast-based monetary policy ,"
Review of Economic Dynamics ,
Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 498-527, April.
[Downloadable!] (restricted)
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Orphanides, Athanasios & Williams, John C, 2006.
"Inflation Targeting under Imperfect Knowledge ,"
CEPR Discussion Papers
5664, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted)
Other versions:
Athanasios Orphanides & John C. Williams, 2006.
"Inflation Targeting under Imperfect Knowledge ,"
Computing in Economics and Finance 2006
38, Society for Computational Economics.
Athanasios Orphanides & John C. Williams, 2006.
"Inflation targeting under imperfect knowledge ,"
Finance and Economics Discussion Series
2006-20, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!] Athanasios Orphanides & John C. Williams, 2006.
"Inflation targeting under imperfect knowledge ,"
Working Paper Series
2006-14, Federal Reserve Bank of San Francisco.
[Downloadable!] Athanasios Orphanides & John C. Williams, 2006.
"Inflation Targeting Under Imperfect Knowledge ,"
Working Papers Central Bank of Chile
398, Central Bank of Chile.
[Downloadable!] Athanasios Orphanides & John C. Williams, 2007.
"Inflation targeting under imperfect knowledge ,"
Economic Review ,
Federal Reserve Bank of San Francisco, pages 1-23.
[Downloadable!] Olivier Coibion & Yuriy Gorodnichenko, 2008.
"Monetary Policy, Trend Inflation and the Great Moderation: An Alternative Interpretation ,"
NBER Working Papers
14621, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Volker Wieland, 2008.
"Learning, Endogenous Indexation and Disinflation in the New-Keynesian Model ,"
CFS Working Paper Series
2008/17, Center for Financial Studies.
[Downloadable!]
Other versions:
Wieland, Volker, 2008.
"Learning, Endogenous Indexation and Disinflation in the New-Keynesian Model ,"
CEPR Discussion Papers
6749, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Volker Wieland, 2008.
"Learning, Endogenous Indexation, and Disinflation in the New-Keynesian Model ,"
Working Papers Central Bank of Chile
493, Central Bank of Chile.
[Downloadable!] Volker Wieland, 2008.
"Learning, Endogenous Indexation, and Disinflation in the New-Keynesian Model ,"
Journal EconomÃa Chilena (The Chilean Economy) ,
Central Bank of Chile, vol. 11(3), pages 21-44, December.
[Downloadable!] Rochelle M. Edge & Thomas Laubach & John C. Williams, 2007.
"Welfare-maximizing monetary policy under parameter uncertainty ,"
Working Paper Series
2007-11, Federal Reserve Bank of San Francisco.
[Downloadable!]
Other versions:
Rochelle M. Edge & Thomas Laubach & John C. Williams, 2007.
"Welfare-maximizing monetary policy under parameter uncertainty ,"
Finance and Economics Discussion Series
2007-56, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!] Rochelle M. Edge & Thomas Laubach & John C. Williams, 3008.
"Welfare-Maximizing Monetary Policy Under Parameter Uncertainty ,"
CAMA Working Papers
2008-16, Australian National University, Centre for Applied Macroeconomic Analysis.
[Downloadable!] Rochelle M. Edge & Thomas Laubach & John C. Williams, 2007.
"Welfare-maximizing monetary policy under parameter uncertainty ,"
Proceedings ,
Federal Reserve Bank of San Francisco.
[Downloadable!] John C. Williams, 2006.
"Monetary policy in a low inflation economy with learning ,"
Working Paper Series
2006-30, Federal Reserve Bank of San Francisco.
[Downloadable!]
Mandler, Martin, 2006.
"Are there gains from including monetary aggregates and stock market indices in the monetary policy reaction function? A simulation study of recent U.S. monetary policy ,"
MPRA Paper
2318, University Library of Munich, Germany.
[Downloadable!]
Vitor Gaspar & Frank Smets & David Vestin, 2006.
"Adaptive learning, persistence, and optimal monetary policy ,"
Working Paper Series
644, European Central Bank.
[Downloadable!]
Other versions: Athanasios Orphanides & John C. Williams, 2008.
"Learning, Expectations Formation, And The Pitfalls Of Optimal Control Monetary Policy ,"
CAMA Working Papers
2008-17, Australian National University, Centre for Applied Macroeconomic Analysis.
[Downloadable!]
Other versions:
Athanasios Orphanides & John C. Williams, 2008.
"Learning, expectations formation and the pitfalls of optimal control monetary policy ,"
Working Paper Series
2008-05, Federal Reserve Bank of San Francisco.
[Downloadable!] Athanasios Orphanides & John C. Williams, 2008.
"Learning, Expectations Formation, and the Pitfalls of Optimal Control Monetary Policy ,"
Working Papers
2008-3, Central Bank of Cyprus.
[Downloadable!] Orphanides, Athanasios & Williams, John C., 2008.
"Learning, expectations formation, and the pitfalls of optimal control monetary policy ,"
Journal of Monetary Economics ,
Elsevier, vol. 55(Supplemen), pages S80-S96, October.
[Downloadable!] (restricted) Alan S. Blinder & Ricardo Reis, 2005.
"Understanding the Greenspan standard ,"
Proceedings ,
Federal Reserve Bank of Kansas City, issue Aug, pages 11-96.
[Downloadable!]
Other versions: George W. Evans & Bruce McGough, 2005.
"Optimal Constrained Interest-rate Rules ,"
University of Oregon Economics Department Working Papers
2005-9, University of Oregon Economics Department, revised 31 May 2006.
[Downloadable!]
Other versions:
Bruce McGough & George Evans, 2004.
"Optimal Constrained Interest Rate Rules ,"
Computing in Economics and Finance 2004
134, Society for Computational Economics.
GEORGE W. EVANS & BRUCE McGOUGH, 2007.
"Optimal Constrained Interest-Rate Rules ,"
Journal of Money, Credit and Banking ,
Blackwell Publishing, vol. 39(6), pages 1335-1356, 09.
[Downloadable!] (restricted) Yu-chin Chen & Pisut Kulthanavit, 2007.
"Adaptive Learning and Monetary Policy: Lessons from Japan ,"
Working Papers
UWEC-2008-12, University of Washington, Department of Economics.
[Downloadable!]
Keiko Honjo & Ben Hunt, 2006.
"Stabilizing Inflation in Iceland ,"
IMF Working Papers
06/262, International Monetary Fund.
[Downloadable!]
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