Extreme Events and the Origin of Central Bank Priors

Loran Chollete () and David Schmeidler
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Loran Chollete: UiS, Postal: University of Stavanger, NO-4036 Stavanger, Norway

No 2014/15, UiS Working Papers in Economics and Finance from University of Stavanger

Abstract: Where do central bank priors come from and how do policymakers evaluate a model before empirical probabilities are available? To address these questions, we analyze two central banks that choose priors about a rare disaster with the help of expert policy teams. Policymakers are misspecification averse when assessing subjective evidence, and therefore hedge in their selection of priors. This hedging results in priors that accommodate a modicum of belief disagreement.

Keywords: Belief Disagreement; Central Bank; Misspecification Aversion; Rare Disaster; Subjective Evidence (search for similar items in EconPapers)
JEL-codes: A10 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2014-08-30
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:stavef:2014_015

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