Robust Monetary Policy under Model Uncertainty and Inflation Persistence
AbstractThis paper examines the relationship between the preference for ro- bustness of central bank (when it fears that its model is misspecified), the inflation persistence and the output cost of disinflation. Using a simple monetary game model in which higher preference for robustness of central bank is positively associated with the inflation persistence and thus nega- tively with the speed of disinflation, this paper shows that the output cost of disinflation is higher when the less the central bank believes that its reference model is robust.
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Bibliographic InfoPaper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2009-09.
Date of creation: 2009
Date of revision:
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Model uncertainty; Robust control; Minmax policies; Inflation persistence; Sacrifice ratio.;
Find related papers by JEL classification:
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-05 (All new papers)
- NEP-CBA-2009-04-05 (Central Banking)
- NEP-MAC-2009-04-05 (Macroeconomics)
- NEP-MON-2009-04-05 (Monetary Economics)
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