IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Methods for Robust Control

  • Richard Dennis
  • Kai Leitemo
  • Ulf Soderstrom

Robust control allows policymakers to formulate policies that guard against model misspecification. The principal tools used to solve robust control problems are state-space methods (see Hansen and Sargent, 2006, and Giordani and Soderlind, 2004). In this paper we show that the structural-form methods developed by Dennis (2006) to solve control problems with rational expectations can also be applied to robust control problems, with the advantage that they bypass the task, often onerous, of having to express the reference model in statespace form. Interestingly, because state-space forms and structural forms are not unique the two approaches do not necessarily return the same equilibriafor robust control problems. We apply both state-space and structural solution methods to an empirical New Keynesian business cycle model and find that the differences between the methods are both qualitatively and quantitatively important. In particular, with the structural-form solution methods the specification errors generally involve changes to the conditional variances in addition to theconditional means of the shock processes.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: ftp://ftp.igier.uni-bocconi.it/wp/2006/307.pdf
Download Restriction: no

Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 307.

as
in new window

Length:
Date of creation: 2006
Date of revision:
Handle: RePEc:igi:igierp:307
Contact details of provider: Postal:
via Rontgen, 1 - 20136 Milano (Italy)

Phone: 0039-02-58363301
Fax: 0039-02-58363302
Web page: http://www.igier.unibocconi.it/

Order Information: Web: http://www.igier.unibocconi.it/en/papers/index.htm Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Fuhrer, Jeffrey C. & Rudebusch, Glenn D., 2004. "Estimating the Euler equation for output," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1133-1153, September.
  2. Kai Leitemo & Ulf Soderstrom, 2004. "Robust Monetary Policy in the New-Keynesian Framework," Working Papers 273, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Glenn D. Rudebusch, 2000. "Assessing nominal income rules for monetary policy with model and data uncertainty," Working Paper Series 2000-03, Federal Reserve Bank of San Francisco.
  4. ENGLE, Robert F. & HENDRY, David F. & RICHARD, Jean-François, . "Exogeneity," CORE Discussion Papers RP 516, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Engle, Robert F & Hendry, David F & Richard, Jean-Francois, 1983. "Exogeneity," Econometrica, Econometric Society, vol. 51(2), pages 277-304, March.
  5. Lars Peter Hansen & Thomas J. Sargent & Thomas D. Tallarini, 1999. "Robust Permanent Income and Pricing," Review of Economic Studies, Oxford University Press, vol. 66(4), pages 873-907.
  6. Noah Williams & Andrew Levin & Alexei Onatski, 2005. "Monetary Policy under Uncertainty in Micro-Founded Macroeconometric Models," Computing in Economics and Finance 2005 478, Society for Computational Economics.
  7. Leitemo , Kai & Söderström , Ulf, 2005. "Robust monetary policy in a small open economy," Research Discussion Papers 20/2005, Bank of Finland.
  8. Gilles Oudiz & Jeffrey Sachs, 1985. "International Policy Coordination in Dynamic Macroeconomic Models," NBER Chapters, in: International Economic Policy Coordination, pages 274-330 National Bureau of Economic Research, Inc.
  9. Giordani, Paolo & Söderlind, Paul, 2002. "Solution of Macromodels with Hansen-Sargent Robust Policies: Some Extensions," SSE/EFI Working Paper Series in Economics and Finance 499, Stockholm School of Economics, revised 15 May 2003.
  10. Richard Dennis, 2001. "Optimal policy in rational-expectations models: new solution algorithms," Working Paper Series 2001-09, Federal Reserve Bank of San Francisco.
  11. Dennis, Richard & Soderstrom, Ulf, 2006. "How Important Is Precommitment for Monetary Policy?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 847-872, June.
  12. Hansen, Lars Peter & Sargent, Thomas J., 2003. "Robust control of forward-looking models," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 581-604, April.
  13. Richard Dennis, 2005. "Robust control with commitment: a modification to Hansen-Sargent," Working Paper Series 2005-20, Federal Reserve Bank of San Francisco.
  14. Thomas J. Sargent & LarsPeter Hansen, 2001. "Robust Control and Model Uncertainty," American Economic Review, American Economic Association, vol. 91(2), pages 60-66, May.
  15. Kydland, Finn E. & Prescott, Edward C., 1980. "Dynamic optimal taxation, rational expectations and optimal control," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 79-91, May.
  16. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
  17. Binder,M. & Pesaran,H.M., 1995. "Multivariate Rational Expectations Models and Macroeconomic Modelling: A Review and Some New Results," Cambridge Working Papers in Economics 9415, Faculty of Economics, University of Cambridge.
  18. Currie,David & Levine,Paul, 2009. "Rules, Reputation and Macroeconomic Policy Coordination," Cambridge Books, Cambridge University Press, number 9780521104609, June.
  19. Lars Peter Hansen & Ellen R. McGrattan & Thomas J. Sargent, 1994. "Mechanics of forming and estimating dynamic linear economies," Staff Report 182, Federal Reserve Bank of Minneapolis.
  20. Willem H. Buiter & Richard C. Marston, 1985. "International Economic Policy Coordination," NBER Books, National Bureau of Economic Research, Inc, number buit85-1, March.
  21. Rudebusch, Glenn D., 2002. "Term structure evidence on interest rate smoothing and monetary policy inertia," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1161-1187, September.
  22. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  23. repec:cup:macdyn:v:6:y:2002:i:1:p:40-84 is not listed on IDEAS
  24. Evan W. Anderson & Lars Peter Hansen & Thomas J. Sargent, 2003. "A Quartet of Semigroups for Model Specification, Robustness, Prices of Risk, and Model Detection," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 68-123, 03.
  25. Backus, David & Driffill, John, 1986. "The Consistency of Optimal Policy in Stochastic Rational Expectations Models," CEPR Discussion Papers 124, C.E.P.R. Discussion Papers.
  26. Hansen, Lars Peter & Sargent, Thomas J. & Wang, Neng E., 2002. "Robust Permanent Income And Pricing With Filtering," Macroeconomic Dynamics, Cambridge University Press, vol. 6(01), pages 40-84, February.
  27. Levine, Paul & Currie, David, 1985. "Optimal feedback rules in an open economy macromodel with rational expectations," European Economic Review, Elsevier, vol. 27(2), pages 141-163, March.
  28. Lars Peter Hansen & Thomas J. Sargent & Thomas D. Tallarini, 1999. "Robust Permanent Income and Pricing," Review of Economic Studies, Oxford University Press, vol. 66(4), pages 873-907.
  29. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:igi:igierp:307. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.