Three Essays on Robustness and Asymmetries in Central Bank Forecasting

Taro Ikeda
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Taro Ikeda: Kurume University, Faculty of Economics

No 1216, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: 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.

Keywords: robust control; asymmetric forecasting; bounded rationality (search for similar items in EconPapers)
JEL-codes: E50 E52 E58 (search for similar items in EconPapers)
Pages: 43pages
Date: 2012-08
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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