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Robust Monetary Policy under Model Uncertainty and Inflation Persistence

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  • Li Qin
  • Moïse SIDIROPOULOS
  • Eleftherios Spyromitros

Abstract

This 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 Info

Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2009-09.

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Date of creation: 2009
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Handle: RePEc:ulp:sbbeta:2009-09

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Related research

Keywords: Model uncertainty; Robust control; Minmax policies; Inflation persistence; Sacrifice ratio.;

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Cited by:
  1. Meixing Dai & Eleftherios Spyromitros, 2010. "Accountability And Transparency About Central Bank Preferences For Model Robustness," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 57(2), pages 212-237, 05.

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