The role of model uncertainty and learning in the US postwar policy response to oil prices

Francesca Rondina

Journal of Economic Dynamics and Control, 2012, vol. 36, issue 7, 1009-1041

Abstract: This paper studies optimal monetary policy in a framework that explicitly accounts for policymakers' uncertainty about the channels of transmission of oil prices into the economy. More specifically, using postwar US data, I examine the evolution of the policy recommendations originating from an optimal linear regulator problem that encompasses model uncertainty and learning, as proposed by Cogley and Sargent (2005b). In this environment, I find that one of the underlying models dominates the robust interest rate response to oil prices, and I show that this result is due to the instability of this specification in the sample period under analysis.

Keywords: Model uncertainty; Learning; Robust policy; Bayesian model averaging; Oil prices (search for similar items in EconPapers)
JEL-codes: C52 E43 E58 E65 (search for similar items in EconPapers)
Date: 2012
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Related works:
Working Paper: The role of model uncertainty and learning in the U.S. postwar policy response to oil prices (2015)
Working Paper: The role of model uncertainty and learning in the U.S. postwar policy response to oil prices (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:36:y:2012:i:7:p:1009-1041

DOI: 10.1016/j.jedc.2012.01.013

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