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Woodford's Approach to Robust Policy Analysis in a Linear-Quadratic Framework

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Listed:
  • Jianjun Miao

    (Boston University)

  • Hyosung Kwon

    (Boston University)

Abstract

This paper extends Woodford's (2010) approach to the robustly monetary policy to a general linear quadratic framwork. We provide algorithms to solve for a time-invariant linear robustly optimal policy from a timeless perspective and for a time-invariant linear Markov perfect equilibrium under discretation. We apply our methods to two New Keynesian models of monetary policy: (i) a model with persistent cost-push shocks and (ii) a model with inflation persistence. We find that the robustly optimal commitment inflation is less responsive to a cost-push shock when the shock is more persistent and that the robustly optimal discretionary policy is more responsive to lagged inflation in the presence inflation inertia.

Suggested Citation

  • Jianjun Miao & Hyosung Kwon, 2013. "Woodford's Approach to Robust Policy Analysis in a Linear-Quadratic Framework," 2013 Meeting Papers 19, Society for Economic Dynamics.
    • Handle: RePEc:red:sed013:19
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    References listed on IDEAS

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    1. Leitemo, Kai & Söderström, Ulf, 2008. "Robust Monetary Policy In The New Keynesian Framework," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S1), pages 126-135, April.
    2. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
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    Cited by:

    1. Kwon, Hyosung & Miao, Jianjun, 2017. "Three types of robust Ramsey problems in a linear-quadratic framework," Journal of Economic Dynamics and Control, Elsevier, vol. 76(C), pages 211-231.
    2. Hengjie Ai & Ravi Bansal, 2016. "Risk Preferences and The Macro Announcement Premium," NBER Working Papers 22527, National Bureau of Economic Research, Inc.
    3. Michael Woodford, 2013. "Macroeconomic Analysis Without the Rational Expectations Hypothesis," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 303-346, May.

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