Robust frequency-based monetary policy rules

Alexander Dück and Fabio Verona

No 180, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)

Abstract: Optimal monetary policy studies typically rely on a single structural model and identification of model-specific rules that minimize the unconditional volatilities of inflation and real activity. In our proposed approach, we take a large set of structural models and look for the model-robust rules that minimize the volatilities at those frequencies that policymakers are most interested in stabilizing. Compared to the status quo approach, our results suggest that policymakers should be more restrained in their inflation responses when their aim is to stabilize inflation and output growth at specific frequencies. Additional caution is called for due to model uncertainty.

Keywords: monetary policy rules; policy evaluation; model comparison; model uncertainty; frequency domain (search for similar items in EconPapers)
JEL-codes: C49 E32 E37 E52 E58 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-cba and nep-mon
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:imfswp:180

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