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Robustly optimal monetary policy with near-rational expectations

  • Michael Woodford

    ()

    (Columbia University - Department of Economics)

The paper considers optimal monetary stabilization policy in a forward-looking model, when the central bank recognizes that private-sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close enough to model-consistency. It is found that commitment continues to be important for optimal policy, that the optimal long-run inflation target is unaffected by the degree of potential distortion of beliefs, and that optimal policy is even more history-dependent than if rational expectations are assumed.

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File URL: http://www.econ.columbia.edu/RePEc/pdf/DP0506-13.pdf
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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0506-13.

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Length: 49 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:clu:wpaper:0506-13
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