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Policymaking under uncertainty: Gradualism and robustness

  • Gadi Barlevy

Some economists have recommended the robust control approach to the formulation of monetary policy under uncertainty when policymakers cannot attach probabilities to the scenarios that concern them. One critique of this approach is that it seems to imply aggressive policies under uncertainty, contrary to the conventional wisdom of acting more gradually in an uncertain environment. This article argues that aggressiveness is not a generic feature of robust control.

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Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

Volume (Year): (2009)
Issue (Month): Q II ()
Pages: 38-55

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Handle: RePEc:fip:fedhep:y:2009:i:qii:p:38-55:n:v.33no.2
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  1. Rustem, Berc & Wieland, Volker & Zakovic, Stan, 2005. "Stochastic optimization and worst-case analysis in monetary policy design," CFS Working Paper Series 2005/14, Center for Financial Studies (CFS).
  2. Manski, Charles F., 2000. "Identification problems and decisions under ambiguity: Empirical analysis of treatment response and normative analysis of treatment choice," Journal of Econometrics, Elsevier, vol. 95(2), pages 415-442, April.
  3. Christopher A. Sims, 2001. "Pitfalls of a Minimax Approach to Model Uncertainty," American Economic Review, American Economic Association, vol. 91(2), pages 51-54, May.
  4. Maccheroni, Fabio & Marinacci, Massimo & Rustichini, Aldo, 2006. "Dynamic variational preferences," Journal of Economic Theory, Elsevier, vol. 128(1), pages 4-44, May.
  5. Larry G. Epstein & Martin Schneider, 2001. "Recursive Multiple-Priors," RCER Working Papers 485, University of Rochester - Center for Economic Research (RCER).
  6. Ben S. Bernanke, 2007. "Monetary policy under uncertainty," Speech 327, Board of Governors of the Federal Reserve System (U.S.).
  7. repec:fip:fedgsq:y:2007:i:oct19 is not listed on IDEAS
  8. Giannoni, Marc P., 2002. "Does Model Uncertainty Justify Caution? Robust Optimal Monetary Policy In A Forward-Looking Model," Macroeconomic Dynamics, Cambridge University Press, vol. 6(01), pages 111-144, February.
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