Robust monetary policy under model uncertainty and inflation persistence

Li Qin, Moise Sidiropoulos and Eleftherios Spyromitros

Economic Modelling, 2013, vol. 30, issue C, 721-728

Abstract: In this paper, we examine the inflation persistence puzzle by applying the robust control approach of Hansen and Sargent (2008). In line with the literature suggesting that inflation persistence may be affected by the monetary policy design and its institutional characteristics, we find that inflation persistence is positively related to the central bank's preference for model robustness. In effect, model uncertainty and robust decision making may be considered as a mechanism generating inflation persistence, for a given non-zero degree of autocorrelation in supply-side shocks. Further, the policy implication is that the central bank's monetary policy under model uncertainty renders, in terms of the sacrifice ratio, the output-cost of inflation stabilization more important.

Keywords: Monetary policy; Robust control; Inflation persistence (search for similar items in EconPapers)
JEL-codes: E50 E52 E58 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999312003495
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Robust monetary policy under model uncertainty and inflation persistence (2013)
Working Paper: Robust Monetary Policy under Model Uncertainty and Inflation Persistence (2009)
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: https://EconPapers.repec.org/RePEc:eee:ecmode:v:30:y:2013:i:c:p:721-728

DOI: 10.1016/j.econmod.2012.10.012

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().