Three Essays on Robustness and Asymmetries in Central Bank Forecasting
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.
|Date of creation:||Aug 2012|
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