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Robust monetary policy under model uncertainty and inflation persistence

Author

Listed:
  • Li Qin

    (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)

  • Moïse Sidiropoulos

    (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique, Aristotle University of Thessaloniki)

  • Eleftherios Spyromitros

    (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique, DUTH - Democritus University of Thrace)

Abstract

In this paper, we examine the inflation persistence puzzle by applying the robust control approach of Hansen and Sargent (2008). In line with the literature suggesting that inflation persistence may be affected by the monetary policy design and its institutional characteristics, we find that inflation persistence is positively related to the central bank's preference for model robustness. In effect, model uncertainty and robust decision making may be considered as a mechanism generating inflation persistence, for a given non-zero degree of autocorrelation in supply-side shocks. Further, the policy implication is that the central bank's monetary policy under model uncertainty renders, in terms of the sacrifice ratio, the output-cost of inflation stabilization more important.

Suggested Citation

  • Li Qin & Moïse Sidiropoulos & Eleftherios Spyromitros, 2013. "Robust monetary policy under model uncertainty and inflation persistence," Post-Print hal-03692269, HAL.
    • Handle: RePEc:hal:journl:hal-03692269
    DOI: 10.1016/j.econmod.2012.10.012
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    Citations

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    Cited by:

    1. André Marine Charlotte & Dai Meixing, 2018. "Learning, robust monetary policy and the merit of precaution," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(2), pages 1-20, June.
    2. André, Marine Charlotte & Dai, Meixing, 2017. "Is central bank conservatism desirable under learning?," Economic Modelling, Elsevier, vol. 60(C), pages 281-296.
    3. Geronikolaou, George & Spyromitros, Eleftherios & Tsintzos, Panagiotis, 2020. "Progressive taxation and human capital as determinants of inflation persistence," Economic Modelling, Elsevier, vol. 88(C), pages 82-97.
    4. Meixing Dai, 2020. "La réponse de la BCE face ? la pandémie de Covid-19," Bulletin de l'Observatoire des politiques économiques en Europe, Observatoire des Politiques Économiques en Europe (OPEE), vol. 42(1), pages 5-14, July.
    5. Bolat, Süleyman & Tiwari, Aviral Kumar & Kyophilavong, Phouphet, 2017. "Testing the inflation rates in MENA countries: Evidence from quantile regression approach and seasonal unit root test," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1089-1095.
    6. Li Qin & Moïse Sidiropoulos, 2016. "Robustness of Optimal Interest Rate Rules in an Open Economy," Bulletin of Applied Economics, Risk Market Journals, vol. 3(1), pages 29-46.
    7. Amélie Barbier-Gauchard & Meixing Dai & Claire Mainguy & Jamel Saadaoui & Moïse Sidiropoulos & Isabelle Terraz & Jamel Trabelsi, 2021. "Towards a more resilient European Union after the COVID-19 crisis," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(2), pages 321-348, June.
    8. Mehdi Hajamini, 2019. "Asymmetric Causality Between Inflation and Uncertainty: Evidences from 33 Developed and Developing Countries," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 17(2), pages 287-309, June.
    9. André Marine Charlotte & Medina Espidio Sebastián, 2022. "Optimal Robust Monetary Policy in a Small Open Economy," Working Papers 2022-17, Banco de México.
    10. Geronikolaou, George & Spyromitros, Eleftherios & Tsintzos, Panagiotis, 2016. "Inflation persistence: The path of labor market structural reforms," Economic Modelling, Elsevier, vol. 58(C), pages 317-322.
    11. Stephanos Papadamou & Eleftherios Spyromitros & Panagiotis Tsintzos, 2017. "Public investment, inflation persistence and central bank independence," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 44(6), pages 976-986, November.
    12. Amélie Barbier-Gauchard & Meixing Dai & Claire Mainguy & Jamel Saadaoui & Moïse Sidiropoulos & Isabelle Terraz & Jamel Trabelsi, 2020. "Towards a more resilient European Union after the COVID-19 crisis," Working Papers hal-03008144, HAL.
    13. Marine Charlotte André & Meixing Dai, 2018. "The limits to robust monetary policy in a small open economy with learning agents," Working Papers of BETA 2018-45, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    14. André, Marine Charlotte & Espidio, Sebastián Medina, 2024. "Optimal robust monetary policy in a small open emerging-market economy," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 5(4).

    More about this item

    Keywords

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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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