Robust Optimal Policy in a Forward-Looking Model with Parameter and Shock Uncertainty

Giannoni, Marc

Robust Optimal Policy in a Forward-Looking Model with Parameter and Shock Uncertainty

No 11942, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper characterizes a robust optimal policy rule in a simple forward-looking model, when the policymaker faces uncertainty about model parameters and shock processes. We show that the robust optimal policy rule is likely to involve a stronger response of the interest rate to fluctuations in inflation and the output gap than is the case in the absence of uncertainty. Thus parameter uncertainty alone does not necessarily justify a small response of monetary policy to perturbations. However uncertainty may amplify the degree of "super-inertia" required by optimal monetary policy. We finally discuss the sensitivity of the results to alternative assumptions.

JEL-codes: C61 D81 E42 E52 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: ME
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Citations: View citations in EconPapers (6)

Published as Gionnoni, Marc. “Robust Optimal Monetary Policy in a Forward-Looking Model with Parameter and Shock Uncertainty.” Journal of Applied Econometrics 22,1 (January/February 2007): 179-213.

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