Robustly optimal monetary policy with near-rational expectations

Michael Woodford ()

No 0506-13, Discussion Papers from Columbia University, Department of Economics

Abstract: The paper considers optimal monetary stabilization policy in a forward-looking model, when the central bank recognizes that private-sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close enough to model-consistency. It is found that commitment continues to be important for optimal policy, that the optimal long-run inflation target is unaffected by the degree of potential distortion of beliefs, and that optimal policy is even more history-dependent than if rational expectations are assumed.

Date: 2005
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Related works:
Working Paper: Robustly Optimal Monetary Policy with Near-Rational Expectations (2007)
Working Paper: Robustly Optimal Monetary Policy with Near Rational Expectations (2005)
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