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Robust Monetary Policy under Model Uncertainty and Inflation Persistence

  • Li Qin
  • Moïse SIDIROPOULOS
  • Eleftherios Spyromitros

This paper examines the relationship between the preference for ro- bustness of central bank (when it fears that its model is misspecified), the inflation persistence and the output cost of disinflation. Using a simple monetary game model in which higher preference for robustness of central bank is positively associated with the inflation persistence and thus nega- tively with the speed of disinflation, this paper shows that the output cost of disinflation is higher when the less the central bank believes that its reference model is robust.

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Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2009-09.

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Date of creation: 2009
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Handle: RePEc:ulp:sbbeta:2009-09
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