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Three Types of Robjst Ramsey Problem in a Linear-Quadratic Framework

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  • Hyosung Kwon
  • Jianjun Miao

Abstract

This paper studies robust Ramsey policy problems in a general discrete-time linear- quadratic framework when the Ramsey planner faces three types of ambiguity. This framework includes both exogenous and endogenous state variables. In addition, the equilibrium system from the private sector contains both backward-looking and forward-looking dynamics. We provide recursive characterizations and algorithms to solve for robust policy. Applying our method to a basic New Keynesian model of optimal monetary policy with persistent cost-push shocks, we find that (i) all three types of ambiguity make optimal monetary policy more history-dependent but for different reasons for each type; and (ii) they deliver qualitatively different initial responses of inflation and the output gap following a cost-push shock.

Suggested Citation

  • Hyosung Kwon & Jianjun Miao, 2013. "Three Types of Robjst Ramsey Problem in a Linear-Quadratic Framework," Boston University - Department of Economics - Working Papers Series 2013-019, Boston University - Department of Economics.
    • Handle: RePEc:bos:wpaper:wp2013-019
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    References listed on IDEAS

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    More about this item

    Keywords

    ambiguity; robustness; robust control; Ramsey policy; monetary policy;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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