Financial stability under model uncertainty

Zeynep Kantur () and Gülserim Özcan

Economics Letters, 2018, vol. 173, issue C, 65-68

Abstract: This paper studies how asset price model misspecification affects the conduct of monetary policy under commitment in a New Keynesian model using robust control techniques. We find that monetary policy reacts aggressively to both asset price and inflation shocks to guard herself against worst-case outcome.

Keywords: Asset price; Robust control; Model uncertainty; Optimal monetary policy (search for similar items in EconPapers)
JEL-codes: D81 E44 E52 E58 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:173:y:2018:i:c:p:65-68

DOI: 10.1016/j.econlet.2018.09.019

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