Optimal robust monetary policy with parameters and output gap uncertainty

Adriana Grasso and Guido Traficante

No 1339, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper studies optimal robust monetary policy when the central bank imperfectly observes potential output and has Knightian uncertainty about the intertemporal elasticity of substitution and the slope of the Phillips curve. The literature on optimal robust monetary policy has focused on either imperfect observability of some variables or on parameter uncertainty. We characterize robust monetary policy analytically under the two types of uncertainty and show that in general they call for a more aggressive reaction of monetary policy compared with the certainty case.

Keywords: potential output; parameter uncertainty; optimal monetary policy; Taylor rule (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Date: 2021-06
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1339_21

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