An Example of Robustly Optimal Monetary Policy with Near-Rational Expectations
AbstractThis paper considers optimal monetary stabilization policy in a forward-looking model, when the central bank recognizes that private-sector expectations need not be precisely model-consistent and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close enough to model-consistency. It is found that commitment continues to be important for optimal policy, that the optimal long-run inflation target is unaffected by the degree of potential distortion of beliefs, and that optimal policy is even more history-dependent than if rational expectations are assumed. (JEL: E52) (c) 2006 by the European Economic Association.
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Bibliographic InfoArticle provided by MIT Press in its journal Journal of the European Economic Association.
Volume (Year): 4 (2006)
Issue (Month): 2-3 (04-05)
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- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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- Ellison, Martin & Sargent, Thomas J, 2009.
"A defence of the FOMC,"
CEPR Discussion Papers
7510, C.E.P.R. Discussion Papers.
- Michael Woodford, 2005.
"Robustly optimal monetary policy with near-rational expectations,"
0506-13, Columbia University, Department of Economics.
- Michael Woodford, 2010. "Robustly Optimal Monetary Policy with Near-Rational Expectations," American Economic Review, American Economic Association, vol. 100(1), pages 274-303, March.
- Woodford, Michael, 2005. "Robustly optimal monetary policy with near-rational expectations," CFS Working Paper Series 2007/12, Center for Financial Studies (CFS).
- Michael Woodford, 2005. "Robustly Optimal Monetary Policy with Near Rational Expectations," NBER Working Papers 11896, National Bureau of Economic Research, Inc.
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