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Policymaking under uncertainty: Gradualism and robustness

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  • Gadi Barlevy

Abstract

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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  • Gadi Barlevy, 2009. "Policymaking under uncertainty: Gradualism and robustness," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 33(Q II), pages 38-55.
    • Handle: RePEc:fip:fedhep:y:2009:i:qii:p:38-55:n:v.33no.2
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    1. Stan Žaković & Volker Wieland & Berc Rustem, 2007. "Stochastic Optimization and Worst-Case Analysis in Monetary Policy Design," Computational Economics, Springer;Society for Computational Economics, vol. 30(4), pages 329-347, November.
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    10. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, March.
    11. Onatski, Alexei & Stock, James H., 2002. "Robust Monetary Policy Under Model Uncertainty In A Small Model Of The U.S. Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 6(1), pages 85-110, February.
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    Cited by:

    1. Karantounias, Anastasios G., 2023. "Doubts about the model and optimal policy," Journal of Economic Theory, Elsevier, vol. 210(C).
    2. Julian A. Parra-Polania & Carmiña O. Vargas, 2014. "Changes in GDP’s measurement error volatility and response of the monetary policy rate: Two approaches," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 32(75), pages 41-47, December.
    3. Gadi Barlevy, 2011. "Robustness and Macroeconomic Policy," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 1-24, September.
    4. Martin Ellison & Thomas J. Sargent, 2012. "A Defense Of The Fomc," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1047-1065, November.
    5. Axelle Ferriere & Anastasios G. Karantounias, 2019. "Fiscal Austerity in Ambiguous Times," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(1), pages 89-131, January.
    6. Gerke, Rafael & Hammermann, Felix & Lewis, Vivien, 2012. "Robust monetary policy in a model with financial distress," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 318-325.
    7. Hansen, Lars Peter & Sargent, Thomas J., 2015. "Four types of ignorance," Journal of Monetary Economics, Elsevier, vol. 69(C), pages 97-113.
    8. , G., 2013. "Managing pessimistic expectations and fiscal policy," Theoretical Economics, Econometric Society, vol. 8(1), January.
    9. Saleem Bahaj & Angus Foulis, 2017. "Macroprodential Policy under Uncertainty," International Journal of Central Banking, International Journal of Central Banking, vol. 13(3), pages 119-154, September.
    10. Christian Aubin & Ibrahima Diouf & Dominique Pepin, 2010. "Inertie De La Politique Monétaire Dans La Zone Euro : Le Rôle De L'Hétérogénéité," Post-Print hal-00960030, HAL.
    11. Alon Binyamini & Tali Larom, 2012. "Encouraging Participation in a Labor Market with Search and Matching Frictions," Bank of Israel Working Papers 2012.11, Bank of Israel.

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