Robustly Optimal Monetary Policy with Near-Rational Expectations

Michael Woodford

American Economic Review, 2010, vol. 100, issue 1, 274-303

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. (JEL C62, D84, E13, E31, E32, E52)

JEL-codes: C62 D84 E13 E31 E32 E52 (search for similar items in EconPapers)
Date: 2010
Note: DOI: 10.1257/aer.100.1.274
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Citations: View citations in EconPapers (87)

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Working Paper: Robustly Optimal Monetary Policy with Near Rational Expectations (2005)
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