The performance of forecast-based monetary policy rules under model uncertainty

Andrew Levin (), Volker Wieland and John Williams

No 68, Working Paper Series from European Central Bank

Abstract: We investigate the performance of forecast-based monetary policy rules using five macroeconomic models that reflect a wide range of views on aggregate dynamics. We identify the key characteristics of rules that are robust to model uncertainty: such rules respond to the one-year ahead inflation forecast and to the current output gap, and incorporate a substantial degree of policy inertia. In contrast, rules with longer forecast horizons are less robust and are prone to generating indeterminacy. In light of these results, we identify a robust benchmark rule that performs very well in all five models over a wide range of policy preferences JEL Classification: E31, E52, E58, E61

Keywords: inflation forecast targeting; optimal monetary policy (search for similar items in EconPapers)
Date: 2001-07
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Citations: View citations in EconPapers (42)

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Related works:
Journal Article: The Performance of Forecast-Based Monetary Policy Rules Under Model Uncertainty (2003)
Working Paper: The performance of forecast-based monetary policy rules under model uncertainty (2003)
Working Paper: The performance of forecast-based monetary policy rules under model uncertainty (2001)
Working Paper: The Performance of Forecast-Based Monetary Policy Rules under Model Uncertainty (2000)
Working Paper: THE PERFORMANCE OF FORECAST-BASED MONETARY POLICY RULES UNDER MODEL UNCERTAINTY (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:200168

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