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A Worst--Case Approach to Inflation Zone Targeting

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  • B. Rustem, V. W. Wieland and S. Zakovic

Abstract

In this paper we present an algorithm for continuous minimax problem where a quasi--Newton direction conditional on appropriate maximizers is used. The direction involves a quadratic subproblem to compute the minimum norm subgradient. An application of the algorithm to a monetary policy design is given. A simple model, due to Orphanides and Wieland, is used for practice of inflation zone targeting. In this paper, however, the approach is different as we minimize the worst--case with respect to inflation and economic activity. Also a comparison with the $H^infinity approach is included.

Suggested Citation

  • B. Rustem, V. W. Wieland and S. Zakovic, 2001. "A Worst--Case Approach to Inflation Zone Targeting," Computing in Economics and Finance 2001 15, Society for Computational Economics.
    • Handle: RePEc:sce:scecf1:15
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    More about this item

    Keywords

    minimax optimization; inflation targeting; uncertainty;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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