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Three Essays on Robustness and Asymmetries in Central Bank Forecasting

  • Taro Ikeda

    (Kurume University, Faculty of Economics)

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    This paper introduces asymmetric central bank forecasting into the standard New Keynesian model within the context of robust control theory. Asymmetric forecasting expresses policymakersf reservations about economic forecasts, and the degree of their reservations is reflected as an asymmetric preference whose existence warrants laying aside the assumption that policymakersf base decisions primarily on rational expectations. This study concludes that monetary policy becomes more aggressive because of policymakersf reservations about forecasts stemming from asymmetry, and preference for policies robust enough to overcome unanticipated situations. In addition, adopted policies will likely amplify economic fluctuations and significantly reduce social welfare.

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    File URL: http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2012/1216.pdf
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    Paper provided by Graduate School of Economics, Kobe University in its series Discussion Papers with number 1216.

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    Length: 43pages
    Date of creation: Aug 2012
    Date of revision:
    Handle: RePEc:koe:wpaper:1216
    Contact details of provider: Web page: http://www.econ.kobe-u.ac.jp
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    1. Carlos Capistrán & Allan Timmermann, 2008. "Disagreement and Biases in Inflation Expectations," CREATES Research Papers 2008-56, School of Economics and Management, University of Aarhus.
    2. Seppo Honkapohja & Kaushik Mitra, 2006. "Learning Stability in Economies with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 284-309, April.
    3. Branch, William A. & McGough, Bruce, 2009. "A New Keynesian model with heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 33(5), pages 1036-1051, May.
    4. Surico, Paolo, 2007. "The Fed's monetary policy rule and U.S. inflation: The case of asymmetric preferences," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 305-324, January.
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