Optimal Monetary Policy under Uncertainty in DSGE Models: A Markov Jump-Linear-Quadratic Approach
In: Monetary Policy under Uncertainty and Learning
AbstractWe study the design of optimal monetary policy under uncertainty in a dynamic stochastic general equilibrium model. We use a Markov jump-linear-quadratic (MJLQ) approach to study policy design, proxying the uncertainty by different discrete modes in a Markov chain, and by taking mode-dependent linear-quadratic approximations of the underlying model. This allows us to apply a powerful methodology with convenient solution algorithms that we have developed. We apply our methods to a benchmark new-Keynesian model, analyzing how policy is affected by uncertainty, and how learning and active testing affect policy and losses.
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This chapter was published in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Monetary Policy under Uncertainty and Learning, , chapter 3, pages 077-114, 2009.
This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v13c03pp077-114.
Other versions of this item:
- Lars E.O. Svensson & Noah Williams, 2008. "Optimal Monetary Policy Under Uncertainty in DSGE Models: A Markov Jump-Linear-Quadratic Approach," Working Papers Central Bank of Chile 484, Central Bank of Chile.
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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