The performance of forecast-based monetary policy rules under model uncertainty

Andrew Theo Levin (), Volker Wieland () and John C. Williams ()

No 2001-39, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We investigate the performance of forecast-based monetary policy rules using five macroeconomic models that reflect a wide range of views on aggregate dynamics. We identify the key characteristics of rules that are robust to model uncertainty: such rules respond to the one-year ahead inflation forecast and to the current output gap, and incorporate a substantial degree of policy inertia. In contrast, rules with longer forecast horizons are less robust and are prone to generating indeterminacy. In light of these results, we identify a robust benchmark rule that performs very well in all five models over a wide range of policy preferences.

Keywords: Monetary policy; Econometric models; Inflation (Finance) (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mon and nep-pke
Date: Written 2001
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Related works:
Working Paper: The Performance of Forecast-Based Monetary Policy Rules under Model Uncertainty (2000)
Working Paper: The performance of forecast-based monetary policy rules under model uncertainty (2001)
Working Paper: THE PERFORMANCE OF FORECAST-BASED MONETARY POLICY RULES UNDER MODEL UNCERTAINTY (2000)
Working Paper: The Performance of Forecast-Based Monetary Policy Rules under Model Uncertainty (2003)
Journal Article: The Performance of Forecast-Based Monetary Policy Rules under Model Uncertainty (2003)
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