Robust optimal policies in behavioral New Keynesian macro models

Giovanni Di Bartolomeo () and Carolina Serpieri

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Abstract: This paper introduces model uncertainty into a behavioral New Keynesian DSGE framework to derive robust optimal monetary policies. We consider two potential forms of agents’ heterogeneity, which refer to two mechanisms of expectations formation used by a fraction of (boundedly rational) agents to generate their beliefs, while the rest of the population forms its expectations in a rational way. The central bank ignores the fraction of boundedly rational agents and/or the mechanism they use to form their expectations. Non-Bayesian robust control techniques are adopted to minimize a welfare loss derived from the second-order approximation of agents’ utilities.

Date: 2019-06
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Persistent link: https://EconPapers.repec.org/RePEc:ter:wpaper:00143

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