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Robust Control and Monetary Policy Delegation

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  • Sidiropoulos, Moïse
  • Diana, Giuseppe

Abstract

This paper adapts in a simple static context the Rogoff's (1985) analysis of monetary policy delegation to a conservative central banker to the robust control framework. In this framework, uncertainty means that policymakers are unsure about their model, in the sense that there is a group of approximate models that they also consider as possibly true, and their objective is to choose a rule that will work under a range of di¤erent model specifications. We find that robustness reveals the emergence of a precautionary behaviour in the case of unstructured model uncertainty, reducing thus government's willingness to delegate monetary policy to a conservative central banker.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23715.

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Date of creation: 21 Jul 2006
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Handle: RePEc:pra:mprapa:23715

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Keywords: Robust control; Monetary policy delegation; Central bank conservativeness.;

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References

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  1. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  2. Leitemo, Kai & Söderström, Ulf, 2005. "Robust Monetary Policy in a Small Open Economy," CEPR Discussion Papers 5071, C.E.P.R. Discussion Papers.
  3. Onatski, Alexei & Williams, Noah, 2002. "Modeling model uncertainty," Working Paper Series 0169, European Central Bank.
  4. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  5. Giordani, Paolo & Soderlind, Paul, 2004. "Solution of macromodels with Hansen-Sargent robust policies: some extensions," Journal of Economic Dynamics and Control, Elsevier, vol. 28(12), pages 2367-2397, December.
  6. Walsh, Carl E, 2004. "Robustly Optimal Instrument Rules and Robust Control: An Equivalence Result," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 1105-13, December.
  7. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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Cited by:
  1. Meixing DAI & Moïse SIDIROPOULOS & Eleftherios SPYROMITROS, 2007. "La transparence de la politique monétaire et la dynamique des marchés financiers," Working Papers of BETA 2007-19, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  2. Sorge, Marco M., 2013. "Robust delegation with uncertain monetary policy preferences," Economic Modelling, Elsevier, vol. 30(C), pages 73-78.
  3. Estelle Dhont-Peltrault & Etienne Pfister, 2007. "R&D cooperation versus R&D subcontracting: empirical evidence from French survey data," Working Papers of BETA 2007-17, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  4. Li Qin & Eleftherios Spyromitros & Moïse Sidiropoulos, 2007. "Monetary Policy with Uncertain Central Bank Preferences for Robustness," Working Papers of BETA 2007-23, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  5. Gisèle Umbhauer, 2007. "De l’amiante au chrysotile, un glissement stratégique dans la désinformation," Working Papers of BETA 2007-15, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  6. Meixing DAI, 2007. "A two-pillar strategy to keep inflation expectations at bay: A basic theoretical framework," Working Papers of BETA 2007-20, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  7. Sofia Pessoa e Costa & Stéphane Robin, 2007. "The Impact Of Training Programmes On Wages In France: An Evaluation Of The “Qualifying Contract” Using Propensity Scores," Working Papers of BETA 2007-18, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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