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Three Essays on Robustness and Asymmetries in Central Bank Forecasting

Author

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  • Taro Ikeda

    (Kurume University, Faculty of Economics)

Abstract

This paper introduces asymmetric central bank forecasting into the standard New Keynesian model within the context of robust control theory. Asymmetric forecasting expresses policymakers f reservations about economic forecasts, and the degree of their reservations is reflected as an asymmetric preference whose existence warrants laying aside the assumption that policymakers f base decisions primarily on rational expectations. This study concludes that monetary policy becomes more aggressive because of policymakers f 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.

Suggested Citation

  • Taro Ikeda, 2012. "Three Essays on Robustness and Asymmetries in Central Bank Forecasting," Discussion Papers 1216, Graduate School of Economics, Kobe University.
  • Handle: RePEc:koe:wpaper:1216
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    File URL: http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2012/1216.pdf
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    References listed on IDEAS

    as
    1. Carlos Capistrán & Allan Timmermann, 2009. "Disagreement and Biases in Inflation Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 365-396, March.
    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.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Alexander HARIN, 2014. "Partially Unforeseen Events. Corrections and Correcting Formulae for Forecasts," Expert Journal of Economics, Sprint Investify, vol. 2(2), pages 69-79.

    More about this item

    Keywords

    robust control; asymmetric forecasting; bounded rationality;

    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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