EconPapers    
Economics at your fingertips  
 

Robustly Optimal Monetary Policy in a Microfounded New Keynesian Model

Klaus Adam () and Michael Woodford ()

No 8826, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We consider optimal monetary stabilization policy in a New Keynesian model with explicit microfoundations, 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 close enough to model-consistency. We show how to characterize robustly optimal policy without restricting consideration a priori to a particular parametric family of candidate policy rules. We show that robustly optimal policy can be implemented through commitment to a target criterion involving only the paths of inflation and a suitably defined output gap, but that a concern for robustness requires greater resistance to surprise increases in inflation than would be considered optimal if one could count on the private sector to have 'rational expectations'.

Keywords: belief distortions; near-rational expectations; robust control; target criterion (search for similar items in EconPapers)
JEL-codes: D81 D84 E52 (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8826 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Robustly optimal monetary policy in a microfounded New Keynesian model (2012) Downloads
Working Paper: Robustly optimal monetary policy in a microfounded new Keynesian model (2012) Downloads
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:cpr:ceprdp:8826

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=8826

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2021-06-15
Handle: RePEc:cpr:ceprdp:8826