This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Uncertainty about the Persistence of Cost-Push Shocks and the Optimal Reaction of the Monetary Authority

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Arnulfo Rodríguez
Fidel González
Jesús R. González García
Abstract

In this paper we formalize the uncertainty about the persistence of cost-push shocks using an open economy optimal control model with Markov regime-switching and robust control. The latter is used in only one of the regimes producing relatively more persistent cost-push shocks in that regime. Conditional on being in the regime with relatively less persistence, we obtain two main results: a) underestimating the probability of switching to the regime with relatively more persistent cost-push shocks causes higher welfare losses than its overestimation; and b) the welfare losses associated with either underestimation or overestimation of such probability increase with the size of the penalty on inflation deviations from its target. Keywords: Model uncertainty, Robustness, Markov regime-switching, Monetary policy, Inflation targeting.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.banxico.org.mx/documents/%7B66932DD9-AD1F-4CA5-126D-505703BE8534%7D.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Banco de México in its series Working Papers with number 2007-05.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:bdm:wpaper:2007-05

Contact details of provider:
Web page: http://www.banxico.org.mx
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Dirección de Sistemas).

Related research
Keywords: Model uncertainty Robustness Markov regime-switching Monetary policy Inflation targeting

Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

This paper has been announced in the following NEP Reports:

Statistics
Access and download statistics

Did you know? IDEAS uses the data collected within the RePEc project, the largest online bibliographic database in Economics.

This page was last updated on 2008-6-30.


This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.