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Parameter misspecification and robust monetary policy rules Author info | Abstract | Publisher info | Download info | Related research | Statistics Carl E.Walsh () (Professor, University of California, Santa Cruz and Visiting Scholar, Federal Reserve Bank of San Francisco. Corresponding address: Department of Economics, University of California, Santa Cruz, CA 95064, USA )
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In this paper, I evaluate the performance deterioration that occurs when the central bank employs an optimal targeting rule that is based on incorrect parameter values. I focus on two parameters — the degree of inflation inertia and the degree of price stickiness. I explicitly account for the effects of the structural parameters on the objective function used to evaluate outcomes, as well as on the model’s behavioral equations. The costs of using simple rules relative to the costs of parameter misspecification are also assessed.
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Paper provided by European Central Bank in its series Working Paper Series with number
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Length: 42 pages
Date of creation: Apr 2005Date of revision:
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Keywords: Monetary Policy Robustness Misspecification. Other versions of this item:
Find related papers by JEL classification: 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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