Robustly Optimal Monetary Policy with Near-Rational Expectations
Michael Woodford ()
No 2007/12, CFS Working Paper Series from Center for Financial Studies
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.
Keywords: Optimal Monetary Policy; Commitment; History-Dependent Policy (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 (search for similar items in EconPapers)
Pages: 50 pages
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Journal Article: Robustly Optimal Monetary Policy with Near-Rational Expectations (2010)
Working Paper: Robustly Optimal Monetary Policy with Near Rational Expectations (2005)
Working Paper: Robustly optimal monetary policy with near-rational expectations (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cfs:cfswop:wp200712
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