Modeling model uncertainty

Alexei Onatski () and Noah Williams ()

No 169, Working Paper Series from European Central Bank

Abstract: Recently there has been much interest in studying monetary policy under model uncertainty. We develop methods to analyze different sources of uncertainty in one coherent structure useful for policy decisions. We show how to estimate the size of the uncertainty based on time series data, and incorporate this uncertainty in policy optimization. We propose two different approaches to modeling model uncertainty. The first is model error modeling, which imposes additional structure on the errors of an estimated model, and builds a statistical description of the uncertainty around a model. The second is set membership identification, which uses a deterministic approach to find a set of models consistent with data and prior assumptions. The center of this set becomes a benchmark model, and the radius measures model uncertainty. Using both approaches, we compute the robust monetary policy under different model uncertainty specifications in a small model of the US economy. JEL Classification: E52; C32; D81.

Keywords: Model uncertainty; estimation; monetary policy. (search for similar items in EconPapers)
Date: 2002-08
View list of references View citations in EconPapers

Downloads: (external link)
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp169.pdf (application/pdf)

Related works:
Working Paper: Modeling model uncertainty (2002)
Working Paper: Modeling Model Uncertainty (2003)
Journal Article: Modeling Model Uncertainty (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20020169

Ordering information: This working paper can be ordered from
Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank
Address: Postfach 16 03 19, Frankfurt am Main, Germany
Contact information at EDIRC.
Series data maintained by Official Publications ().